Correlation Between United Parcel and Arista Networks
Can any of the company-specific risk be diversified away by investing in both United Parcel 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 United Parcel and Arista Networks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Parcel Service and Arista Networks, you can compare the effects of market volatilities on United Parcel 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 United Parcel with a short position of Arista Networks. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Parcel and Arista Networks.
Diversification Opportunities for United Parcel and Arista Networks
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between United and Arista is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding United Parcel Service and Arista Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arista Networks and United Parcel 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 United Parcel Service 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 United Parcel i.e., United Parcel and Arista Networks go up and down completely randomly.
Pair Corralation between United Parcel and Arista Networks
Assuming the 90 days trading horizon United Parcel is expected to generate 2.64 times less return on investment than Arista Networks. But when comparing it to its historical volatility, United Parcel Service is 1.78 times less risky than Arista Networks. It trades about 0.1 of its potential returns per unit of risk. Arista Networks is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 12,479 in Arista Networks on September 12, 2024 and sell it today you would earn a total of 3,336 from holding Arista Networks or generate 26.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Parcel Service vs. Arista Networks
Performance |
| Timeline |
| United Parcel Service |
| Arista Networks |
United Parcel and Arista Networks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Parcel and Arista Networks
The main advantage of trading using opposite United Parcel and Arista Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Parcel 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.| United Parcel vs. HDFC Bank Limited | United Parcel vs. T Mobile | United Parcel vs. New Oriental Education | United Parcel vs. Telecomunicaes Brasileiras SA |
| Arista Networks vs. Uber Technologies | Arista Networks vs. Zoom Video Communications | Arista Networks vs. Livetech da Bahia | Arista Networks vs. Marvell Technology |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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