Correlation Between Seiko Epson and Arista Networks

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

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

Diversification Opportunities for Seiko Epson and Arista Networks

0.48

Correlation Coefficient

Seiko Epson  Arista Networks

Very weak diversification

The 3 months correlation between Seiko and Arista is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Seiko Epson and Arista Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arista Networks and Seiko Epson 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 Seiko Epson 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 Seiko Epson i.e., Seiko Epson and Arista Networks go up and down completely randomly.

Pair Corralation between Seiko Epson and Arista Networks

Assuming the 90 days horizon Seiko Epson is expected to generate 5.32 times less return on investment than Arista Networks. But when comparing it to its historical volatility, Seiko Epson is 1.62 times less risky than Arista Networks. It trades about 0.06 of its potential returns per unit of risk. Arista Networks is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  9,600  in Arista Networks on September 23, 2024 and sell it today you would earn a total of  982.00  from holding Arista Networks or generate 10.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Seiko Epson  vs.  Arista Networks

Seiko Epson

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Seiko Epson are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Seiko Epson is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Arista Networks

Risk-Adjusted Performance

10 of 100

Good

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.

Pair Trading with Seiko Epson and Arista Networks

The main advantage of trading using opposite Seiko Epson and Arista Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seiko Epson 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 Seiko Epson 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.