Correlation Between Cisco Systems and STELLA-JONES INC

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

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

Diversification Opportunities for Cisco Systems and STELLA-JONES INC

0.5

Correlation Coefficient

Cisco Systems  STELLA-JONES INC

Very weak diversification

The 3 months correlation between Cisco and STELLA-JONES is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and STELLA JONES INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STELLA JONES INC 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 STELLA-JONES INC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STELLA JONES INC has no effect on the direction of Cisco Systems i.e., Cisco Systems and STELLA-JONES INC go up and down completely randomly.

Pair Corralation between Cisco Systems and STELLA-JONES INC

Assuming the 90 days horizon Cisco Systems is expected to generate 0.69 times more return on investment than STELLA-JONES INC. However, Cisco Systems is 1.45 times less risky than STELLA-JONES INC. It trades about 0.01 of its potential returns per unit of risk. STELLA JONES INC is currently generating about -0.07 per unit of risk. If you would invest  5,660  in Cisco Systems on December 26, 2024 and sell it today you would earn a total of  3.00  from holding Cisco Systems or generate 0.05% return on investment over 90 days.

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

Cisco Systems  vs.  STELLA JONES INC

Cisco Systems

Risk-Adjusted Performance

Very 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

STELLA JONES INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days STELLA JONES INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Cisco Systems and STELLA-JONES INC

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

The idea behind Cisco Systems and STELLA JONES INC 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.