Correlation Between Arista Networks and Desktop Metal

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

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

Diversification Opportunities for Arista Networks and Desktop Metal

0.22

Correlation Coefficient

Arista Networks  Desktop Metal

Modest diversification

The 3 months correlation between Arista and Desktop is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Arista Networks and Desktop Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desktop Metal and Arista Networks 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 Arista Networks are associated (or correlated) with Desktop Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desktop Metal has no effect on the direction of Arista Networks i.e., Arista Networks and Desktop Metal go up and down completely randomly.

Pair Corralation between Arista Networks and Desktop Metal

Given the investment horizon of 90 days Arista Networks is expected to generate 0.59 times more return on investment than Desktop Metal. However, Arista Networks is 1.7 times less risky than Desktop Metal. It trades about 0.09 of its potential returns per unit of risk. Desktop Metal is currently generating about -0.35 per unit of risk. If you would invest  29,658  in Arista Networks on February 11, 2024 and sell it today you would earn a total of  1,745  from holding Arista Networks or generate 5.88% return on investment over 90 days.

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

Arista Networks  vs.  Desktop Metal

Arista Networks

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arista Networks are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Arista Networks unveiled solid returns over the last few months and may actually be approaching a breakup point.

Desktop Metal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Desktop Metal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Desktop Metal displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arista Networks and Desktop Metal

The main advantage of trading using opposite Arista Networks and Desktop Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arista Networks position performs unexpectedly, Desktop Metal 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 Desktop Metal will offset losses from the drop in Desktop Metal's long position.

The idea behind Arista Networks and Desktop Metal 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.