Correlation Between Webster Financial and Arrow Financial

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

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

Diversification Opportunities for Webster Financial and Arrow Financial

0.94

Correlation Coefficient

Webster Financial  Arrow Financial

Almost no diversification

The 3 months correlation between Webster and Arrow is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Webster Financial and Arrow Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Financial and Webster 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 Webster Financial 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 Webster Financial i.e., Webster Financial and Arrow Financial go up and down completely randomly.

Pair Corralation between Webster Financial and Arrow Financial

Considering the 90-day investment horizon Webster Financial is expected to generate 1.26 times more return on investment than Arrow Financial. However, Webster Financial is 1.26 times more volatile than Arrow Financial. It trades about 0.08 of its potential returns per unit of risk. Arrow Financial is currently generating about 0.01 per unit of risk. If you would invest  4,706  in Webster Financial on September 21, 2024 and sell it today you would earn a total of  707.00  from holding Webster Financial or generate 15.02% return on investment over 90 days.

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

Webster Financial  vs.  Arrow Financial

Webster Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Webster Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, Webster Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Arrow Financial

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Webster Financial and Arrow Financial

The main advantage of trading using opposite Webster Financial and Arrow Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Webster Financial 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 Webster Financial 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.