Correlation Between Tyson Foods and Arista Networks

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

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

Diversification Opportunities for Tyson Foods and Arista Networks

-0.16

Correlation Coefficient

Tyson Foods  Arista Networks

Good diversification

The 3 months correlation between Tyson and Arista is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Tyson Foods and Arista Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arista Networks and Tyson Foods 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 Tyson Foods 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 Tyson Foods i.e., Tyson Foods and Arista Networks go up and down completely randomly.

Pair Corralation between Tyson Foods and Arista Networks

Assuming the 90 days trading horizon Tyson Foods is expected to generate 0.24 times more return on investment than Arista Networks. However, Tyson Foods is 4.2 times less risky than Arista Networks. It trades about -0.03 of its potential returns per unit of risk. Arista Networks is currently generating about -0.08 per unit of risk. If you would invest  35,742  in Tyson Foods on December 23, 2024 and sell it today you would lose (966.00) from holding Tyson Foods or give up 2.7% of portfolio value over 90 days.

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

Tyson Foods  vs.  Arista Networks

Tyson Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tyson Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tyson Foods is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

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. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tyson Foods and Arista Networks

The main advantage of trading using opposite Tyson Foods and Arista Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tyson Foods 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 Tyson Foods 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.