Correlation Between Cisco Systems and Arch Therapeutics

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

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

Diversification Opportunities for Cisco Systems and Arch Therapeutics

-0.86

Correlation Coefficient

Cisco Systems  Arch Therapeutics

Pay attention - limited upside

The 3 months correlation between Cisco and Arch is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Arch Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Therapeutics 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 Arch Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Therapeutics has no effect on the direction of Cisco Systems i.e., Cisco Systems and Arch Therapeutics go up and down completely randomly.

Pair Corralation between Cisco Systems and Arch Therapeutics

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.05 times more return on investment than Arch Therapeutics. However, Cisco Systems is 18.23 times less risky than Arch Therapeutics. It trades about 0.27 of its potential returns per unit of risk. Arch Therapeutics is currently generating about 0.01 per unit of risk. If you would invest  4,968  in Cisco Systems on September 3, 2024 and sell it today you would earn a total of  953.00  from holding Cisco Systems or generate 19.18% return on investment over 90 days.

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

Cisco Systems  vs.  Arch Therapeutics

Cisco Systems

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Arch Therapeutics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Therapeutics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Arch Therapeutics demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and Arch Therapeutics

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

The idea behind Cisco Systems and Arch Therapeutics 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.