Correlation Between Arrow Electronics and Griffon

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

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

Diversification Opportunities for Arrow Electronics and Griffon

0.3

Correlation Coefficient

Arrow Electronics  Griffon

Weak diversification

The 3 months correlation between Arrow and Griffon is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Griffon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Griffon 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 Griffon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Griffon has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Griffon go up and down completely randomly.

Pair Corralation between Arrow Electronics and Griffon

Considering the 90-day investment horizon Arrow Electronics is expected to generate 0.62 times more return on investment than Griffon. However, Arrow Electronics is 1.62 times less risky than Griffon. It trades about 0.16 of its potential returns per unit of risk. Griffon is currently generating about 0.01 per unit of risk. If you would invest  11,487  in Arrow Electronics on February 17, 2024 and sell it today you would earn a total of  1,490  from holding Arrow Electronics or generate 12.97% 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.  Griffon

Arrow Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Electronics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Arrow Electronics showed solid returns over the last few months and may actually be approaching a breakup point.

Griffon

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Griffon are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Griffon is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Arrow Electronics and Griffon

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

The idea behind Arrow Electronics and Griffon 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.

Check out your portfolio center.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.