Correlation Between Cisco Systems and Axim Biotechnologies

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

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

Diversification Opportunities for Cisco Systems and Axim Biotechnologies

-0.85

Correlation Coefficient

Cisco Systems  Axim Biotechnologies

Pay attention - limited upside

The 3 months correlation between Cisco and Axim is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Axim Biotechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axim Biotechnologies 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 Axim Biotechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axim Biotechnologies has no effect on the direction of Cisco Systems i.e., Cisco Systems and Axim Biotechnologies go up and down completely randomly.

Pair Corralation between Cisco Systems and Axim Biotechnologies

Given the investment horizon of 90 days Cisco Systems is expected to generate 1.93 times less return on investment than Axim Biotechnologies. But when comparing it to its historical volatility, Cisco Systems is 21.3 times less risky than Axim Biotechnologies. It trades about 0.31 of its potential returns per unit of risk. Axim Biotechnologies is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.70  in Axim Biotechnologies on September 5, 2024 and sell it today you would lose (0.40) from holding Axim Biotechnologies or give up 57.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Cisco Systems  vs.  Axim Biotechnologies

Cisco Systems

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 24 (%) 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.

Axim Biotechnologies

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Cisco Systems and Axim Biotechnologies

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

The idea behind Cisco Systems and Axim Biotechnologies 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.