Correlation Between KAUFMAN ET and Cisco Systems

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

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

Diversification Opportunities for KAUFMAN ET and Cisco Systems

0.35

Correlation Coefficient

KAUFMAN ET  Cisco Systems

Weak diversification

The 3 months correlation between KAUFMAN and Cisco is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding KAUFMAN ET BROAD and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and KAUFMAN ET 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 KAUFMAN ET BROAD 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 KAUFMAN ET i.e., KAUFMAN ET and Cisco Systems go up and down completely randomly.

Pair Corralation between KAUFMAN ET and Cisco Systems

Assuming the 90 days trading horizon KAUFMAN ET BROAD is expected to generate 1.11 times more return on investment than Cisco Systems. However, KAUFMAN ET is 1.11 times more volatile than Cisco Systems. It trades about 0.01 of its potential returns per unit of risk. Cisco Systems is currently generating about 0.0 per unit of risk. If you would invest  3,175  in KAUFMAN ET BROAD on December 29, 2024 and sell it today you would earn a total of  10.00  from holding KAUFMAN ET BROAD or generate 0.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

KAUFMAN ET BROAD  vs.  Cisco Systems

KAUFMAN ET BROAD

Risk-Adjusted Performance

Very Weak

Over the last 90 days KAUFMAN ET BROAD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, KAUFMAN ET is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Cisco Systems

Risk-Adjusted Performance

Weak

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

Pair Trading with KAUFMAN ET and Cisco Systems

The main advantage of trading using opposite KAUFMAN ET and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KAUFMAN ET 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 KAUFMAN ET BROAD 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.