Correlation Between Cisco Systems and All American

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

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

Diversification Opportunities for Cisco Systems and All American

-0.13

Correlation Coefficient

Cisco Systems  All American

Good diversification

The 3 months correlation between Cisco and All is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and All American Gld in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on All American Gld 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 All American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of All American Gld has no effect on the direction of Cisco Systems i.e., Cisco Systems and All American go up and down completely randomly.

Pair Corralation between Cisco Systems and All American

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.11 times more return on investment than All American. However, Cisco Systems is 8.89 times less risky than All American. It trades about 0.05 of its potential returns per unit of risk. All American Gld is currently generating about -0.01 per unit of risk. If you would invest  5,921  in Cisco Systems on December 27, 2024 and sell it today you would earn a total of  178.00  from holding Cisco Systems or generate 3.01% return on investment over 90 days.

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

Cisco Systems  vs.  All American Gld

Cisco Systems

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 3 (%) 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.

All American Gld

Risk-Adjusted Performance

Weak

Over the last 90 days All American Gld has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, All American is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cisco Systems and All American

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

The idea behind Cisco Systems and All American Gld 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.