Correlation Between Pure Storage and Arista Networks

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

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

Diversification Opportunities for Pure Storage and Arista Networks

0.92

Correlation Coefficient

Pure Storage  Arista Networks

Almost no diversification

The 3 months correlation between Pure and Arista is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Pure Storage and Arista Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arista Networks and Pure Storage 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 Pure Storage 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 Pure Storage i.e., Pure Storage and Arista Networks go up and down completely randomly.

Pair Corralation between Pure Storage and Arista Networks

Given the investment horizon of 90 days Pure Storage is expected to under-perform the Arista Networks. In addition to that, Pure Storage is 1.27 times more volatile than Arista Networks. It trades about -0.29 of its total potential returns per unit of risk. Arista Networks is currently generating about -0.26 per unit of volatility. If you would invest  9,638  in Arista Networks on December 28, 2024 and sell it today you would lose (1,869) from holding Arista Networks or give up 19.39% of portfolio value over 90 days.

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

Pure Storage  vs.  Arista Networks

Pure Storage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pure Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Arista Networks

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Pure Storage and Arista Networks

The main advantage of trading using opposite Pure Storage and Arista Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pure Storage 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 Pure Storage 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.