Correlation Between Arrow Financial and Sound Financial

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

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

Diversification Opportunities for Arrow Financial and Sound Financial

0.08

Correlation Coefficient

Arrow Financial  Sound Financial

Significant diversification

The 3 months correlation between Arrow and Sound is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Financial and Sound Financial Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Financial Bancorp 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 Sound Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Financial Bancorp has no effect on the direction of Arrow Financial i.e., Arrow Financial and Sound Financial go up and down completely randomly.

Pair Corralation between Arrow Financial and Sound Financial

Given the investment horizon of 90 days Arrow Financial is expected to under-perform the Sound Financial. In addition to that, Arrow Financial is 1.14 times more volatile than Sound Financial Bancorp. It trades about -0.44 of its total potential returns per unit of risk. Sound Financial Bancorp is currently generating about 0.08 per unit of volatility. If you would invest  5,357  in Sound Financial Bancorp on September 25, 2024 and sell it today you would earn a total of  114.00  from holding Sound Financial Bancorp or generate 2.13% return on investment over 90 days.

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

Arrow Financial  vs.  Sound Financial Bancorp

Arrow Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Financial are ranked lower than 2 (%) 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.

Sound Financial Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sound Financial Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Sound Financial is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Arrow Financial and Sound Financial

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

The idea behind Arrow Financial and Sound Financial Bancorp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.