Correlation Between Arrow Electronics and GMS

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

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

Diversification Opportunities for Arrow Electronics and GMS

0.32

Correlation Coefficient

Arrow Electronics  GMS

Weak diversification

The 3 months correlation between Arrow and GMS is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc 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 GMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMS Inc has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and GMS go up and down completely randomly.

Pair Corralation between Arrow Electronics and GMS

Considering the 90-day investment horizon Arrow Electronics is expected to generate 0.72 times more return on investment than GMS. However, Arrow Electronics is 1.39 times less risky than GMS. It trades about 0.01 of its potential returns per unit of risk. GMS Inc is currently generating about -0.06 per unit of risk. If you would invest  13,348  in Arrow Electronics on July 26, 2024 and sell it today you would earn a total of  43.00  from holding Arrow Electronics or generate 0.32% return on investment over 90 days.

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

Arrow Electronics  vs.  GMS Inc

Arrow Electronics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Electronics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Arrow Electronics may actually be approaching a critical reversion point that can send shares even higher in November 2024.

GMS Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMS Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, GMS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Arrow Electronics and GMS

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

The idea behind Arrow Electronics and GMS Inc 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.