Correlation Between Universal Electronics and Arrow Electronics

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

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

Diversification Opportunities for Universal Electronics and Arrow Electronics

0.73

Correlation Coefficient

Universal Electronics  Arrow Electronics

Poor diversification

The 3 months correlation between Universal and Arrow is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Universal Electronics and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and Universal 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 Universal Electronics 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 Universal Electronics i.e., Universal Electronics and Arrow Electronics go up and down completely randomly.

Pair Corralation between Universal Electronics and Arrow Electronics

Assuming the 90 days horizon Universal Electronics is expected to generate 2.85 times more return on investment than Arrow Electronics. However, Universal Electronics is 2.85 times more volatile than Arrow Electronics. It trades about 0.13 of its potential returns per unit of risk. Arrow Electronics is currently generating about 0.21 per unit of risk. If you would invest  404.00  in Universal Electronics on April 20, 2025 and sell it today you would earn a total of  146.00  from holding Universal Electronics or generate 36.14% return on investment over 90 days.

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

Universal Electronics  vs.  Arrow Electronics

Universal Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Electronics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Universal Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Arrow Electronics

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Electronics are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Arrow Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Electronics and Arrow Electronics

The main advantage of trading using opposite Universal Electronics and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Electronics 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 Universal Electronics 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.