Correlation Between Arista Networks and CTS

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

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

Diversification Opportunities for Arista Networks and CTS

0.47

Correlation Coefficient

Arista Networks  CTS

Very weak diversification

The 3 months correlation between Arista and CTS is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Arista Networks and CTS Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTS Corporation 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 CTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTS Corporation has no effect on the direction of Arista Networks i.e., Arista Networks and CTS go up and down completely randomly.

Pair Corralation between Arista Networks and CTS

Given the investment horizon of 90 days Arista Networks is expected to generate 1.35 times more return on investment than CTS. However, Arista Networks is 1.35 times more volatile than CTS Corporation. It trades about 0.12 of its potential returns per unit of risk. CTS Corporation is currently generating about 0.04 per unit of risk. If you would invest  2,737  in Arista Networks on September 26, 2024 and sell it today you would earn a total of  8,728  from holding Arista Networks or generate 318.89% return on investment over 90 days.

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

Arista Networks  vs.  CTS Corp.

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. In spite of comparatively unfluctuating technical and fundamental indicators, Arista Networks unveiled solid returns over the last few months and may actually be approaching a breakup point.

CTS Corporation

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CTS Corporation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CTS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Arista Networks and CTS

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

The idea behind Arista Networks and CTS Corporation 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.