Correlation Between Seagate Technology and Arista Networks

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

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

Diversification Opportunities for Seagate Technology and Arista Networks

0.54

Correlation Coefficient

Seagate Technology  Arista Networks

Very weak diversification

The 3 months correlation between Seagate and Arista is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Seagate Technology PLC and Arista Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arista Networks and Seagate Technology 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 Seagate Technology PLC 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 Seagate Technology i.e., Seagate Technology and Arista Networks go up and down completely randomly.

Pair Corralation between Seagate Technology and Arista Networks

Considering the 90-day investment horizon Seagate Technology PLC is expected to generate 0.53 times more return on investment than Arista Networks. However, Seagate Technology PLC is 1.89 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 -0.24 per unit of risk. If you would invest  9,472  in Seagate Technology PLC on January 26, 2024 and sell it today you would lose (761.00) from holding Seagate Technology PLC or give up 8.03% of portfolio value over 90 days.

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

Seagate Technology PLC  vs.  Arista Networks

Seagate Technology PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seagate Technology PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Seagate Technology is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Seagate Technology and Arista Networks

The main advantage of trading using opposite Seagate Technology and Arista Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seagate Technology 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.

The idea behind Seagate Technology PLC and Arista Networks 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.