Correlation Between Amazon and Arista Networks
Can any of the company-specific risk be diversified away by investing in both Amazon and Arista Networks 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 Amazon and Arista Networks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Arista Networks, you can compare the effects of market volatilities on Amazon and Arista Networks 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 Amazon with a short position of Arista Networks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Arista Networks.
Diversification Opportunities for Amazon and Arista Networks
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Amazon and Arista is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Arista Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arista Networks and Amazon 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 Amazon Inc are associated (or correlated) with Arista Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arista Networks has no effect on the direction of Amazon i.e., Amazon and Arista Networks go up and down completely randomly.
Pair Corralation between Amazon and Arista Networks
Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.63 times more return on investment than Arista Networks. However, Amazon Inc is 1.58 times less risky than Arista Networks. It trades about 0.25 of its potential returns per unit of risk. Arista Networks is currently generating about 0.15 per unit of risk. If you would invest 5,245 in Amazon Inc on September 12, 2024 and sell it today you would earn a total of 1,625 from holding Amazon Inc or generate 30.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.41% |
| Values | Daily Returns |
Amazon Inc vs. Arista Networks
Performance |
| Timeline |
| Amazon Inc |
| Arista Networks |
Amazon and Arista Networks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Arista Networks
The main advantage of trading using opposite Amazon and Arista Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Arista Networks 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 Arista Networks will offset losses from the drop in Arista Networks' long position.| Amazon vs. Monster Beverage | Amazon vs. Tyson Foods | Amazon vs. Unity Software | Amazon vs. Multilaser Industrial SA |
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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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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