Correlation Between Snap On and Arrow Electronics

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

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

Diversification Opportunities for Snap On and Arrow Electronics

-0.68

Correlation Coefficient

Snap On  Arrow Electronics

Excellent diversification

The 3 months correlation between Snap and Arrow is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Snap On and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and Snap On 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 Snap On 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 Snap On i.e., Snap On and Arrow Electronics go up and down completely randomly.

Pair Corralation between Snap On and Arrow Electronics

Considering the 90-day investment horizon Snap On is expected to generate 0.88 times more return on investment than Arrow Electronics. However, Snap On is 1.14 times less risky than Arrow Electronics. It trades about 0.08 of its potential returns per unit of risk. Arrow Electronics is currently generating about 0.03 per unit of risk. If you would invest  21,384  in Snap On on September 12, 2024 and sell it today you would earn a total of  14,255  from holding Snap On or generate 66.66% return on investment over 90 days.

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

Snap On  vs.  Arrow Electronics

Snap On

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Snap On are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Snap On sustained solid returns over the last few months and may actually be approaching a breakup point.

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 Snap On and Arrow Electronics

The main advantage of trading using opposite Snap On and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Snap On 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 Snap On 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.