Correlation Between Bank of Marin and Arrow Financial

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

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

Diversification Opportunities for Bank of Marin and Arrow Financial

0.73

Correlation Coefficient

Bank of Marin  Arrow Financial

Poor diversification

The 3 months correlation between Bank and Arrow is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Marin and Arrow Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Financial and Bank of Marin 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 Bank of Marin 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 Bank of Marin i.e., Bank of Marin and Arrow Financial go up and down completely randomly.

Pair Corralation between Bank of Marin and Arrow Financial

Given the investment horizon of 90 days Bank of Marin is expected to under-perform the Arrow Financial. In addition to that, Bank of Marin is 1.1 times more volatile than Arrow Financial. It trades about -0.03 of its total potential returns per unit of risk. Arrow Financial is currently generating about -0.03 per unit of volatility. If you would invest  2,538  in Arrow Financial on January 10, 2025 and sell it today you would lose (122.00) from holding Arrow Financial or give up 4.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Bank of Marin  vs.  Arrow Financial

Bank of Marin

Risk-Adjusted Performance

Very Weak

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

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.

Pair Trading with Bank of Marin and Arrow Financial

The main advantage of trading using opposite Bank of Marin and Arrow Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Marin 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 Bank of Marin 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.