Correlation Between Arrow Electronics and Genuine Parts

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

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

Diversification Opportunities for Arrow Electronics and Genuine Parts

0.75

Correlation Coefficient

Arrow Electronics  Genuine Parts

Poor diversification

The 3 months correlation between Arrow and Genuine is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Genuine Parts Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts and Arrow Electronics 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 Arrow Electronics are associated (or correlated) with Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Genuine Parts go up and down completely randomly.

Pair Corralation between Arrow Electronics and Genuine Parts

Considering the 90-day investment horizon Arrow Electronics is expected to under-perform the Genuine Parts. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Electronics is 1.97 times less risky than Genuine Parts. The stock trades about -0.05 of its potential returns per unit of risk. The Genuine Parts Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  14,885  in Genuine Parts Co on February 4, 2024 and sell it today you would earn a total of  747.00  from holding Genuine Parts Co or generate 5.02% return on investment over 90 days.

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

Arrow Electronics  vs.  Genuine Parts Co

Arrow Electronics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Electronics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Arrow Electronics showed solid returns over the last few months and may actually be approaching a breakup point.

Genuine Parts

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Genuine Parts Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Genuine Parts may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Arrow Electronics and Genuine Parts

The main advantage of trading using opposite Arrow Electronics and Genuine Parts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arrow Electronics position performs unexpectedly, Genuine Parts 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 Genuine Parts will offset losses from the drop in Genuine Parts' long position.

The idea behind Arrow Electronics and Genuine Parts Co 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.