Correlation Between Eastern and Arrow Electronics

Can any of the company-specific risk be diversified away by investing in both Eastern and Arrow Electronics at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Eastern and Arrow Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eastern Co and Arrow Electronics, you can compare the effects of market volatilities on Eastern and Arrow Electronics and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Eastern with a short position of Arrow Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern and Arrow Electronics.

Diversification Opportunities for Eastern and Arrow Electronics

0.83

Correlation Coefficient

Eastern  Arrow Electronics

Very poor diversification

The 3 months correlation between Eastern and Arrow is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and Eastern is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Eastern Co are associated (or correlated) with Arrow Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Electronics has no effect on the direction of Eastern i.e., Eastern and Arrow Electronics go up and down completely randomly.

Pair Corralation between Eastern and Arrow Electronics

Considering the 90-day investment horizon Eastern Co is expected to generate 1.08 times more return on investment than Arrow Electronics. However, Eastern is 1.08 times more volatile than Arrow Electronics. It trades about -0.01 of its potential returns per unit of risk. Arrow Electronics is currently generating about -0.04 per unit of risk. If you would invest  2,971  in Eastern Co on September 2, 2024 and sell it today you would lose (99.00) from holding Eastern Co or give up 3.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Eastern Co  vs.  Arrow Electronics

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, Eastern is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Arrow Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arrow Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Arrow Electronics is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Eastern and Arrow Electronics

The main advantage of trading using opposite Eastern and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastern position performs unexpectedly, Arrow Electronics can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Arrow Electronics will offset losses from the drop in Arrow Electronics' long position.

The idea behind Eastern Co and Arrow Electronics pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.