Correlation Between Arrow Financial and Community West

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

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

Diversification Opportunities for Arrow Financial and Community West

0.87

Correlation Coefficient

Arrow Financial  Community West

Very poor diversification

The 3 months correlation between Arrow and Community is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Financial and Community West Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community West Bancshares 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 Community West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community West Bancshares has no effect on the direction of Arrow Financial i.e., Arrow Financial and Community West go up and down completely randomly.

Pair Corralation between Arrow Financial and Community West

Given the investment horizon of 90 days Arrow Financial is expected to generate 1.16 times more return on investment than Community West. However, Arrow Financial is 1.16 times more volatile than Community West Bancshares. It trades about 0.01 of its potential returns per unit of risk. Community West Bancshares is currently generating about -0.02 per unit of risk. If you would invest  2,538  in Arrow Financial on January 9, 2025 and sell it today you would lose (1.00) from holding Arrow Financial or give up 0.04% of portfolio value over 90 days.

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

Arrow Financial  vs.  Community West Bancshares

Arrow Financial

Risk-Adjusted Performance

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 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.

Community West Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community West Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Community West is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Arrow Financial and Community West

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

The idea behind Arrow Financial and Community West Bancshares 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.