Correlation Between INVITATION HOMES and Cisco Systems

Can any of the company-specific risk be diversified away by investing in both INVITATION HOMES and Cisco Systems 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 INVITATION HOMES and Cisco Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between INVITATION HOMES DL and Cisco Systems, you can compare the effects of market volatilities on INVITATION HOMES and Cisco Systems 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 INVITATION HOMES with a short position of Cisco Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of INVITATION HOMES and Cisco Systems.

Diversification Opportunities for INVITATION HOMES and Cisco Systems

-0.18

Correlation Coefficient

INVITATION HOMES  Cisco Systems

Good diversification

The 3 months correlation between INVITATION and Cisco is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding INVITATION HOMES DL and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and INVITATION HOMES 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 INVITATION HOMES DL are associated (or correlated) with Cisco Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisco Systems has no effect on the direction of INVITATION HOMES i.e., INVITATION HOMES and Cisco Systems go up and down completely randomly.

Pair Corralation between INVITATION HOMES and Cisco Systems

Assuming the 90 days horizon INVITATION HOMES DL is expected to under-perform the Cisco Systems. In addition to that, INVITATION HOMES is 1.5 times more volatile than Cisco Systems. It trades about -0.02 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.33 per unit of volatility. If you would invest  4,498  in Cisco Systems on September 3, 2024 and sell it today you would earn a total of  1,141  from holding Cisco Systems or generate 25.37% return on investment over 90 days.

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

INVITATION HOMES DL  vs.  Cisco Systems

INVITATION HOMES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INVITATION HOMES DL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, INVITATION HOMES is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Cisco Systems

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cisco Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with INVITATION HOMES and Cisco Systems

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

The idea behind INVITATION HOMES DL and Cisco Systems 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.