Correlation Between Omni Small and Cisco Systems

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

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

Diversification Opportunities for Omni Small and Cisco Systems

0.6

Correlation Coefficient

Omni Small  Cisco Systems

Poor diversification

The 3 months correlation between Omni and Cisco is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Omni Small Cap Value and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Omni Small 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 Omni Small Cap Value 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 Omni Small i.e., Omni Small and Cisco Systems go up and down completely randomly.

Pair Corralation between Omni Small and Cisco Systems

Assuming the 90 days horizon Omni Small Cap Value is expected to under-perform the Cisco Systems. In addition to that, Omni Small is 2.64 times more volatile than Cisco Systems. It trades about -0.21 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.14 per unit of volatility. If you would invest  5,731  in Cisco Systems on September 19, 2024 and sell it today you would earn a total of  121.00  from holding Cisco Systems or generate 2.11% return on investment over 90 days.

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

Omni Small Cap Value  vs.  Cisco Systems

Omni Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Omni Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Omni Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cisco Systems

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Omni Small and Cisco Systems

The main advantage of trading using opposite Omni Small and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Omni Small 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 Omni Small Cap Value 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.