Correlation Between Arrow Financial and Herc Holdings

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

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

Diversification Opportunities for Arrow Financial and Herc Holdings

0.5

Correlation Coefficient

Arrow Financial  Herc Holdings

Very weak diversification

The 3 months correlation between Arrow and Herc is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Financial and Herc Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Herc Holdings 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 Herc Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Herc Holdings has no effect on the direction of Arrow Financial i.e., Arrow Financial and Herc Holdings go up and down completely randomly.

Pair Corralation between Arrow Financial and Herc Holdings

Given the investment horizon of 90 days Arrow Financial is expected to generate 0.5 times more return on investment than Herc Holdings. However, Arrow Financial is 1.99 times less risky than Herc Holdings. It trades about -0.04 of its potential returns per unit of risk. Herc Holdings is currently generating about -0.13 per unit of risk. If you would invest  2,819  in Arrow Financial on December 27, 2024 and sell it today you would lose (133.00) from holding Arrow Financial or give up 4.72% of portfolio value over 90 days.

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

Arrow Financial  vs.  Herc Holdings

Arrow Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arrow Financial has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Herc Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Herc Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Arrow Financial and Herc Holdings

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

The idea behind Arrow Financial and Herc Holdings 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.