Correlation Between Arista Networks and National Grid

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

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

Diversification Opportunities for Arista Networks and National Grid

-0.6

Correlation Coefficient

Arista Networks  National Grid

Excellent diversification

The 3 months correlation between Arista and National is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Arista Networks and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of Arista Networks i.e., Arista Networks and National Grid go up and down completely randomly.

Pair Corralation between Arista Networks and National Grid

Assuming the 90 days horizon Arista Networks is expected to generate 1.34 times more return on investment than National Grid. However, Arista Networks is 1.34 times more volatile than National Grid PLC. It trades about 0.11 of its potential returns per unit of risk. National Grid PLC is currently generating about 0.02 per unit of risk. If you would invest  2,868  in Arista Networks on September 24, 2024 and sell it today you would earn a total of  7,714  from holding Arista Networks or generate 268.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Arista Networks  vs.  National Grid PLC

Arista Networks

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arista Networks are ranked lower than 11 (%) 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.

National Grid PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Arista Networks and National Grid

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

The idea behind Arista Networks and National Grid PLC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.