Correlation Between Microsoft and Arista Networks
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Arista Networks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Arista Networks, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Arista Networks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Arista Networks.
Diversification Opportunities for Microsoft and Arista Networks
0.15 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Arista is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Arista Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arista Networks and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Arista Networks go up and down completely randomly.
Pair Corralation between Microsoft and Arista Networks
Given the investment horizon of 90 days Microsoft is expected to generate 4.28 times less return on investment than Arista Networks. But when comparing it to its historical volatility, Microsoft is 2.07 times less risky than Arista Networks. It trades about 0.05 of its potential returns per unit of risk. Arista Networks is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 20,190 in Arista Networks on September 3, 2024 and sell it today you would earn a total of 18,330 from holding Arista Networks or generate 90.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.41% |
| Values | Daily Returns |
Microsoft vs. Arista Networks
Performance |
| Timeline |
| Microsoft |
| Arista Networks |
Microsoft and Arista Networks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Arista Networks
The main advantage of trading using opposite Microsoft and Arista Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Arista Networks vs. Choice Hotels International | Arista Networks vs. T MOBILE INCDL 00001 | Arista Networks vs. CENTURIA OFFICE REIT | Arista Networks vs. NH HOTEL GROUP |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
Other Complementary Tools
| Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios | |
| Bonds Directory Find actively traded corporate debentures issued by US companies | |
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk |