Armor Stands on squids work perfectly on land but once the stack hits the water, the stack will dissemble and the armor stand will fall off the squid. The is currently no ways to prevent this and it seems like glitch
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It used to work though. You could have an armor stand riding a squid underwater and then you can make it look like fish.
Players are also dismounted from horses underwater; I'm guessing riding/passengers don't work under water?