Correlation Between Arrow Financial and Analog Devices

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

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

Diversification Opportunities for Arrow Financial and Analog Devices

-0.56

Correlation Coefficient

Arrow Financial  Analog Devices

Excellent diversification

The 3 months correlation between Arrow and Analog is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Financial and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and Arrow Financial 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 Financial are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of Arrow Financial i.e., Arrow Financial and Analog Devices go up and down completely randomly.

Pair Corralation between Arrow Financial and Analog Devices

Given the investment horizon of 90 days Arrow Financial is expected to generate 4.15 times less return on investment than Analog Devices. In addition to that, Arrow Financial is 1.28 times more volatile than Analog Devices. It trades about 0.01 of its total potential returns per unit of risk. Analog Devices is currently generating about 0.04 per unit of volatility. If you would invest  16,120  in Analog Devices on September 29, 2024 and sell it today you would earn a total of  5,579  from holding Analog Devices or generate 34.61% return on investment over 90 days.

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

Arrow Financial  vs.  Analog Devices

Arrow Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Arrow Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Arrow Financial and Analog Devices

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

The idea behind Arrow Financial and Analog Devices 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.