Correlation Between Arista Networks and ADTRAN

Can any of the company-specific risk be diversified away by investing in both Arista Networks and ADTRAN 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 Arista Networks and ADTRAN into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arista Networks and ADTRAN Inc, you can compare the effects of market volatilities on Arista Networks and ADTRAN 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 Arista Networks with a short position of ADTRAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arista Networks and ADTRAN.

Diversification Opportunities for Arista Networks and ADTRAN

-0.44

Correlation Coefficient

Arista Networks  ADTRAN

Very good diversification

The 3 months correlation between Arista and ADTRAN is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Arista Networks and ADTRAN Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADTRAN Inc and Arista Networks 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 Arista Networks are associated (or correlated) with ADTRAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADTRAN Inc has no effect on the direction of Arista Networks i.e., Arista Networks and ADTRAN go up and down completely randomly.

Pair Corralation between Arista Networks and ADTRAN

Given the investment horizon of 90 days Arista Networks is expected to under-perform the ADTRAN. In addition to that, Arista Networks is 1.23 times more volatile than ADTRAN Inc. It trades about -0.36 of its total potential returns per unit of risk. ADTRAN Inc is currently generating about -0.23 per unit of volatility. If you would invest  531.00  in ADTRAN Inc on January 24, 2024 and sell it today you would lose (57.00) from holding ADTRAN Inc or give up 10.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Arista Networks  vs.  ADTRAN Inc

Arista Networks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arista Networks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Arista Networks is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

ADTRAN Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADTRAN Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Arista Networks and ADTRAN

The main advantage of trading using opposite Arista Networks and ADTRAN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arista Networks position performs unexpectedly, ADTRAN 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 ADTRAN will offset losses from the drop in ADTRAN's long position.

The idea behind Arista Networks and ADTRAN Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.