Correlation Between Ames National and Arrow Financial

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

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

Diversification Opportunities for Ames National and Arrow Financial

0.43

Correlation Coefficient

Ames National  Arrow Financial

Very weak diversification

The 3 months correlation between Ames and Arrow is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ames National and Arrow Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Financial and Ames National 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 Ames National 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 Ames National i.e., Ames National and Arrow Financial go up and down completely randomly.

Pair Corralation between Ames National and Arrow Financial

Given the investment horizon of 90 days Ames National is expected to generate 0.92 times more return on investment than Arrow Financial. However, Ames National is 1.09 times less risky than Arrow Financial. It trades about -0.03 of its potential returns per unit of risk. Arrow Financial is currently generating about -0.13 per unit of risk. If you would invest  1,959  in Ames National on January 26, 2024 and sell it today you would lose (26.00) from holding Ames National or give up 1.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Ames National  vs.  Arrow Financial

Ames National

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ames National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Ames National is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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.

Pair Trading with Ames National and Arrow Financial

The main advantage of trading using opposite Ames National and Arrow Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ames National 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 Ames National 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 CEOs Directory module to screen CEOs from public companies around the world.