Correlation Between Cisco Systems and Boeing

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

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

Diversification Opportunities for Cisco Systems and Boeing

0.43

Correlation Coefficient

Cisco Systems  Boeing

Very weak diversification

The 3 months correlation between Cisco and Boeing is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and The Boeing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boeing 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 Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing has no effect on the direction of Cisco Systems i.e., Cisco Systems and Boeing go up and down completely randomly.

Pair Corralation between Cisco Systems and Boeing

Assuming the 90 days trading horizon Cisco Systems is expected to under-perform the Boeing. But the stock apears to be less risky and, when comparing its historical volatility, Cisco Systems is 1.28 times less risky than Boeing. The stock trades about -0.12 of its potential returns per unit of risk. The The Boeing is currently generating about 0.55 of returns per unit of risk over similar time horizon. If you would invest  307,228  in The Boeing on September 24, 2024 and sell it today you would earn a total of  54,272  from holding The Boeing or generate 17.67% 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.  The Boeing

Cisco Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Cisco Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Boeing

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Boeing showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and Boeing

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

The idea behind Cisco Systems and The Boeing 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.