Correlation Between Arista Networks and VMware

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Can any of the company-specific risk be diversified away by investing in both Arista Networks and VMware 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 VMware into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arista Networks and VMware Inc, you can compare the effects of market volatilities on Arista Networks and VMware 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 VMware. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arista Networks and VMware.

Diversification Opportunities for Arista Networks and VMware

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Arista and VMware is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Arista Networks and VMware Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VMware 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 VMware. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VMware Inc has no effect on the direction of Arista Networks i.e., Arista Networks and VMware go up and down completely randomly.

Pair Corralation between Arista Networks and VMware

Given the investment horizon of 90 days Arista Networks is expected to generate 2.12 times more return on investment than VMware. However, Arista Networks is 2.12 times more volatile than VMware Inc. It trades about 0.09 of its potential returns per unit of risk. VMware Inc is currently generating about 0.07 per unit of risk. If you would invest  11,755  in Arista Networks on September 3, 2022 and sell it today you would earn a total of  1,749  from holding Arista Networks or generate 14.88% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Arista Networks  vs.  VMware Inc

 Performance (%) 
       Timeline  
Arista Networks 
Arista Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Arista Networks are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Arista Networks unveiled solid returns over the last few months and may actually be approaching a breakup point.

Arista Price Channel

VMware Inc 
VMware Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in VMware Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable primary indicators, VMware is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

VMware Price Channel

Arista Networks and VMware Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Arista Networks and VMware

The main advantage of trading using opposite Arista Networks and VMware positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arista Networks position performs unexpectedly, VMware 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 VMware will offset losses from the drop in VMware's long position.
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The idea behind Arista Networks and VMware 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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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.

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