Correlation Between American Financial and Cisco Systems

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

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

Diversification Opportunities for American Financial and Cisco Systems

-0.22

Correlation Coefficient

American Financial  Cisco Systems

Very good diversification

The 3 months correlation between American and Cisco is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and American Financial 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 American Financial Group 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 American Financial i.e., American Financial and Cisco Systems go up and down completely randomly.

Pair Corralation between American Financial and Cisco Systems

Given the investment horizon of 90 days American Financial Group is expected to under-perform the Cisco Systems. But the preferred stock apears to be less risky and, when comparing its historical volatility, American Financial Group is 1.06 times less risky than Cisco Systems. The preferred stock trades about -0.16 of its potential returns per unit of risk. The Cisco Systems is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,748  in Cisco Systems on October 7, 2024 and sell it today you would earn a total of  138.00  from holding Cisco Systems or generate 2.4% return on investment over 90 days.

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

American Financial Group  vs.  Cisco Systems

American Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Cisco Systems

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with American Financial and Cisco Systems

The main advantage of trading using opposite American Financial and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Financial 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 American Financial Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.