Correlation Between Cisco Systems and 35137LAK1

Can any of the company-specific risk be diversified away by investing in both Cisco Systems and 35137LAK1 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 35137LAK1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cisco Systems and FOX P, you can compare the effects of market volatilities on Cisco Systems and 35137LAK1 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 35137LAK1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and 35137LAK1.

Diversification Opportunities for Cisco Systems and 35137LAK1

-0.76

Correlation Coefficient

Cisco Systems  35137LAK1

Pay attention - limited upside

The 3 months correlation between Cisco and 35137LAK1 is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and FOX P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 35137LAK1 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 35137LAK1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 35137LAK1 has no effect on the direction of Cisco Systems i.e., Cisco Systems and 35137LAK1 go up and down completely randomly.

Pair Corralation between Cisco Systems and 35137LAK1

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.88 times more return on investment than 35137LAK1. However, Cisco Systems is 1.14 times less risky than 35137LAK1. It trades about 0.27 of its potential returns per unit of risk. FOX P is currently generating about -0.05 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	Weak
Accuracy	96.88%
Values	Daily Returns

Cisco Systems  vs.  FOX P

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.

35137LAK1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FOX P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 35137LAK1 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cisco Systems and 35137LAK1

The main advantage of trading using opposite Cisco Systems and 35137LAK1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, 35137LAK1 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 35137LAK1 will offset losses from the drop in 35137LAK1's long position.

The idea behind Cisco Systems and FOX P 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.