Correlation Between Arrow Electronics and Tyson Foods

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

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

Diversification Opportunities for Arrow Electronics and Tyson Foods

0.76

Correlation Coefficient

Arrow Electronics  Tyson Foods

Poor diversification

The 3 months correlation between Arrow and Tyson is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Tyson Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tyson Foods 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 Tyson Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tyson Foods has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Tyson Foods go up and down completely randomly.

Pair Corralation between Arrow Electronics and Tyson Foods

Considering the 90-day investment horizon Arrow Electronics is expected to generate 1.01 times more return on investment than Tyson Foods. However, Arrow Electronics is 1.01 times more volatile than Tyson Foods. It trades about 0.1 of its potential returns per unit of risk. Tyson Foods is currently generating about 0.09 per unit of risk. If you would invest  12,019  in Arrow Electronics on March 1, 2024 and sell it today you would earn a total of  1,036  from holding Arrow Electronics or generate 8.62% 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.  Tyson Foods

Arrow Electronics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Electronics are ranked lower than 8 (%) 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 June 2024.

Tyson Foods

Risk-Adjusted Performance

7 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tyson Foods are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Tyson Foods may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Arrow Electronics and Tyson Foods

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

The idea behind Arrow Electronics and Tyson Foods 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.