Correlation Between Advanced Energy and Cisco Systems

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

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

Diversification Opportunities for Advanced Energy and Cisco Systems

0.21

Correlation Coefficient

Advanced Energy  Cisco Systems

Modest diversification

The 3 months correlation between Advanced and Cisco is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Advanced Energy 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 Advanced Energy Industries 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 Advanced Energy i.e., Advanced Energy and Cisco Systems go up and down completely randomly.

Pair Corralation between Advanced Energy and Cisco Systems

Given the investment horizon of 90 days Advanced Energy Industries is expected to under-perform the Cisco Systems. In addition to that, Advanced Energy is 2.71 times more volatile than Cisco Systems. It trades about -0.08 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.05 per unit of volatility. If you would invest  5,879  in Cisco Systems on December 30, 2024 and sell it today you would earn a total of  207.00  from holding Cisco Systems or generate 3.52% return on investment over 90 days.

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

Advanced Energy Industries  vs.  Cisco Systems

Advanced Energy Indu

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advanced Energy Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Cisco Systems

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Cisco Systems is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Advanced Energy and Cisco Systems

The main advantage of trading using opposite Advanced Energy and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Energy 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 Advanced Energy Industries 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.

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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.