Correlation Between ESSA Bancorp and Arrow Financial
Can any of the company-specific risk be diversified away by investing in both ESSA Bancorp 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 ESSA Bancorp and Arrow Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ESSA Bancorp and Arrow Financial, you can compare the effects of market volatilities on ESSA Bancorp 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 ESSA Bancorp with a short position of Arrow Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESSA Bancorp and Arrow Financial.
Diversification Opportunities for ESSA Bancorp and Arrow Financial
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ESSA and Arrow is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Bancorp and Arrow Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Financial and ESSA Bancorp 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 ESSA Bancorp 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 ESSA Bancorp i.e., ESSA Bancorp and Arrow Financial go up and down completely randomly.
Pair Corralation between ESSA Bancorp and Arrow Financial
Given the investment horizon of 90 days ESSA Bancorp is expected to generate 0.98 times more return on investment than Arrow Financial. However, ESSA Bancorp is 1.02 times less risky than Arrow Financial. It trades about 0.07 of its potential returns per unit of risk. Arrow Financial is currently generating about 0.06 per unit of risk. If you would invest 1,849 in ESSA Bancorp on August 23, 2024 and sell it today you would earn a total of 166.00 from holding ESSA Bancorp or generate 8.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ESSA Bancorp vs. Arrow Financial
Performance |
| Timeline |
| ESSA Bancorp |
| Arrow Financial |
ESSA Bancorp and Arrow Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ESSA Bancorp and Arrow Financial
The main advantage of trading using opposite ESSA Bancorp and Arrow Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ESSA Bancorp 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.| ESSA Bancorp vs. Community West Bancshares | ESSA Bancorp vs. First Northwest Bancorp | ESSA Bancorp vs. First Community | ESSA Bancorp vs. Oak Valley Bancorp |
| Arrow Financial vs. Waterstone Financial | Arrow Financial vs. Mid Penn Bancorp | Arrow Financial vs. ST Bancorp | Arrow Financial vs. Republic Bancorp |
Check out your portfolio center.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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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