Correlation Between Arrow Financial and Amerant Bancorp

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

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

Diversification Opportunities for Arrow Financial and Amerant Bancorp

0.67

Correlation Coefficient

Arrow Financial  Amerant Bancorp

Poor diversification

The 3 months correlation between Arrow and Amerant is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Financial and Amerant Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amerant 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 Amerant Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amerant Bancorp has no effect on the direction of Arrow Financial i.e., Arrow Financial and Amerant Bancorp go up and down completely randomly.

Pair Corralation between Arrow Financial and Amerant Bancorp

Given the investment horizon of 90 days Arrow Financial is expected to under-perform the Amerant Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Financial is 1.36 times less risky than Amerant Bancorp. The stock trades about -0.13 of its potential returns per unit of risk. The Amerant Bancorp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,197  in Amerant Bancorp on January 26, 2024 and sell it today you would earn a total of  75.00  from holding Amerant Bancorp or generate 3.41% return on investment over 90 days.

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

Arrow Financial  vs.  Amerant Bancorp

Arrow Financial

Risk-Adjusted Performance

0 of 100

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 conflicting performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in May 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Amerant Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amerant Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Amerant Bancorp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Arrow Financial and Amerant Bancorp

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

The idea behind Arrow Financial and Amerant 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.