Correlation Between MagnaChip Semiconductor and Arista Networks

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

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

Diversification Opportunities for MagnaChip Semiconductor and Arista Networks

-0.28

Correlation Coefficient

MagnaChip Semiconductor  Arista Networks

Very good diversification

The 3 months correlation between MagnaChip and Arista is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor Corp and Arista Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arista Networks and MagnaChip Semiconductor 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 MagnaChip Semiconductor Corp 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 MagnaChip Semiconductor i.e., MagnaChip Semiconductor and Arista Networks go up and down completely randomly.

Pair Corralation between MagnaChip Semiconductor and Arista Networks

Assuming the 90 days trading horizon MagnaChip Semiconductor Corp is expected to under-perform the Arista Networks. In addition to that, MagnaChip Semiconductor is 1.24 times more volatile than Arista Networks. It trades about -0.07 of its total potential returns per unit of risk. Arista Networks is currently generating about 0.22 per unit of volatility. If you would invest  9,798  in Arista Networks on September 27, 2024 and sell it today you would earn a total of  1,064  from holding Arista Networks or generate 10.86% return on investment over 90 days.

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

MagnaChip Semiconductor Corp  vs.  Arista Networks

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MagnaChip Semiconductor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Arista Networks

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arista Networks are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Arista Networks reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MagnaChip Semiconductor and Arista Networks

The main advantage of trading using opposite MagnaChip Semiconductor and Arista Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MagnaChip Semiconductor 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 MagnaChip Semiconductor Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.