Correlation Between Cisco Systems and Acreage Holdings

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

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

Diversification Opportunities for Cisco Systems and Acreage Holdings

-0.51

Correlation Coefficient

Cisco Systems  Acreage Holdings

Excellent diversification

The 3 months correlation between Cisco and Acreage is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Acreage Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acreage Holdings and Cisco Systems 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 Cisco Systems are associated (or correlated) with Acreage Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acreage Holdings has no effect on the direction of Cisco Systems i.e., Cisco Systems and Acreage Holdings go up and down completely randomly.

Pair Corralation between Cisco Systems and Acreage Holdings

Given the investment horizon of 90 days Cisco Systems is expected to generate 5.57 times less return on investment than Acreage Holdings. But when comparing it to its historical volatility, Cisco Systems is 10.84 times less risky than Acreage Holdings. It trades about 0.07 of its potential returns per unit of risk. Acreage Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  24.00  in Acreage Holdings on September 19, 2024 and sell it today you would lose (12.00) from holding Acreage Holdings or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.98%
Values	Daily Returns

Cisco Systems  vs.  Acreage Holdings

Cisco Systems

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Acreage Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Acreage Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile fundamental indicators, Acreage Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cisco Systems and Acreage Holdings

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

The idea behind Cisco Systems and Acreage Holdings 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.