Correlation Between Cisco Systems and Aldebaran Resources

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

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

Diversification Opportunities for Cisco Systems and Aldebaran Resources

0.91

Correlation Coefficient

Cisco Systems  Aldebaran Resources

Almost no diversification

The 3 months correlation between Cisco and Aldebaran is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Aldebaran Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aldebaran Resources 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 Aldebaran Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aldebaran Resources has no effect on the direction of Cisco Systems i.e., Cisco Systems and Aldebaran Resources go up and down completely randomly.

Pair Corralation between Cisco Systems and Aldebaran Resources

Given the investment horizon of 90 days Cisco Systems is expected to generate 4.79 times less return on investment than Aldebaran Resources. But when comparing it to its historical volatility, Cisco Systems is 4.48 times less risky than Aldebaran Resources. It trades about 0.29 of its potential returns per unit of risk. Aldebaran Resources is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  65.00  in Aldebaran Resources on September 4, 2024 and sell it today you would earn a total of  88.00  from holding Aldebaran Resources or generate 135.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Cisco Systems  vs.  Aldebaran Resources

Cisco Systems

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Aldebaran Resources

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aldebaran Resources are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aldebaran Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and Aldebaran Resources

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

The idea behind Cisco Systems and Aldebaran Resources 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.