Correlation Between Arista Networks and Amgen

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

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

Diversification Opportunities for Arista Networks and Amgen

-0.64

Correlation Coefficient

Arista Networks  Amgen

Excellent diversification

The 3 months correlation between Arista and Amgen is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Arista Networks and Amgen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amgen 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 Amgen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amgen Inc has no effect on the direction of Arista Networks i.e., Arista Networks and Amgen go up and down completely randomly.

Pair Corralation between Arista Networks and Amgen

Assuming the 90 days horizon Arista Networks is expected to generate 1.46 times more return on investment than Amgen. However, Arista Networks is 1.46 times more volatile than Amgen Inc. It trades about 0.1 of its potential returns per unit of risk. Amgen Inc is currently generating about -0.05 per unit of risk. If you would invest  7,783  in Arista Networks on September 23, 2024 and sell it today you would earn a total of  2,799  from holding Arista Networks or generate 35.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.23%
Values	Daily Returns

Arista Networks  vs.  Amgen Inc

Arista Networks

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arista Networks are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Arista Networks reported solid returns over the last few months and may actually be approaching a breakup point.

Amgen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amgen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Arista Networks and Amgen

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

The idea behind Arista Networks and Amgen 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.