Correlation Between First Capital and Arrow Financial

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

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

Diversification Opportunities for First Capital and Arrow Financial

-0.5

Correlation Coefficient

First Capital  Arrow Financial

Very good diversification

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

Pair Corralation between First Capital and Arrow Financial

Given the investment horizon of 90 days First Capital is expected to under-perform the Arrow Financial. But the stock apears to be less risky and, when comparing its historical volatility, First Capital is 1.3 times less risky than Arrow Financial. The stock trades about -0.09 of its potential returns per unit of risk. The Arrow Financial is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,893  in Arrow Financial on September 23, 2024 and sell it today you would earn a total of  7.00  from holding Arrow Financial or generate 0.24% return on investment over 90 days.

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

First Capital  vs.  Arrow Financial

First Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

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.

Pair Trading with First Capital and Arrow Financial

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

The idea behind First Capital and Arrow Financial 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.