Correlation Between Toshiba Tec and Arista Networks

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

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

Diversification Opportunities for Toshiba Tec and Arista Networks

-0.15

Correlation Coefficient

Toshiba Tec  Arista Networks

Good diversification

The 3 months correlation between Toshiba and Arista is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Toshiba Tec and Arista Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arista Networks and Toshiba Tec 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 Toshiba Tec 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 Toshiba Tec i.e., Toshiba Tec and Arista Networks go up and down completely randomly.

Pair Corralation between Toshiba Tec and Arista Networks

Assuming the 90 days trading horizon Toshiba Tec is expected to under-perform the Arista Networks. But the stock apears to be less risky and, when comparing its historical volatility, Toshiba Tec is 2.02 times less risky than Arista Networks. The stock trades about -0.15 of its potential returns per unit of risk. The Arista Networks is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9,986  in Arista Networks on December 4, 2024 and sell it today you would earn a total of  970.00  from holding Arista Networks or generate 9.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	66.67%
Values	Daily Returns

Toshiba Tec  vs.  Arista Networks

Toshiba Tec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toshiba Tec has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental 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

Modest

Over the last 90 days Arista Networks has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, Arista Networks reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toshiba Tec and Arista Networks

The main advantage of trading using opposite Toshiba Tec and Arista Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toshiba Tec 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 Toshiba Tec 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.