Correlation Between Kimball Electronics and Arista Networks

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

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

Diversification Opportunities for Kimball Electronics and Arista Networks

0.19

Correlation Coefficient

Kimball Electronics  Arista Networks

Average diversification

The 3 months correlation between Kimball and Arista is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Kimball Electronics and Arista Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arista Networks and Kimball Electronics 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 Kimball Electronics 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 Kimball Electronics i.e., Kimball Electronics and Arista Networks go up and down completely randomly.

Pair Corralation between Kimball Electronics and Arista Networks

Allowing for the 90-day total investment horizon Kimball Electronics is expected to under-perform the Arista Networks. But the stock apears to be less risky and, when comparing its historical volatility, Kimball Electronics is 1.35 times less risky than Arista Networks. The stock trades about -0.12 of its potential returns per unit of risk. The Arista Networks is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  9,993  in Arista Networks on September 26, 2024 and sell it today you would earn a total of  1,316  from holding Arista Networks or generate 13.17% return on investment over 90 days.

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

Kimball Electronics  vs.  Arista Networks

Kimball Electronics

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kimball Electronics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Kimball Electronics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arista Networks

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arista Networks are ranked lower than 9 (%) 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.

Pair Trading with Kimball Electronics and Arista Networks

The main advantage of trading using opposite Kimball Electronics and Arista Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kimball Electronics 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 Kimball Electronics 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.