Correlation Between Emerson Radio and Arrow Electronics

Can any of the company-specific risk be diversified away by investing in both Emerson Radio 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 Emerson Radio and Arrow Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Emerson Radio and Arrow Electronics, you can compare the effects of market volatilities on Emerson Radio 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 Emerson Radio with a short position of Arrow Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerson Radio and Arrow Electronics.

Diversification Opportunities for Emerson Radio and Arrow Electronics

0.62

Correlation Coefficient

Emerson Radio  Arrow Electronics

Poor diversification

The 3 months correlation between Emerson and Arrow is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Radio and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and Emerson Radio 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 Emerson Radio 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 Emerson Radio i.e., Emerson Radio and Arrow Electronics go up and down completely randomly.

Pair Corralation between Emerson Radio and Arrow Electronics

Considering the 90-day investment horizon Emerson Radio is expected to under-perform the Arrow Electronics. In addition to that, Emerson Radio is 1.31 times more volatile than Arrow Electronics. It trades about -0.09 of its total potential returns per unit of risk. Arrow Electronics is currently generating about -0.1 per unit of volatility. If you would invest  13,283  in Arrow Electronics on September 28, 2024 and sell it today you would lose (1,780) from holding Arrow Electronics or give up 13.4% of portfolio value over 90 days.

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

Emerson Radio  vs.  Arrow Electronics

Emerson Radio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerson Radio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm 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 uncertain performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Emerson Radio and Arrow Electronics

The main advantage of trading using opposite Emerson Radio and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerson Radio 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 Emerson Radio 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.