Correlation Between Cisco Systems and Arkema SA

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

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

Diversification Opportunities for Cisco Systems and Arkema SA

-0.6

Correlation Coefficient

Cisco Systems  Arkema SA

Excellent diversification

The 3 months correlation between Cisco and Arkema is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Arkema SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkema SA ADR 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 Arkema SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkema SA ADR has no effect on the direction of Cisco Systems i.e., Cisco Systems and Arkema SA go up and down completely randomly.

Pair Corralation between Cisco Systems and Arkema SA

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.52 times more return on investment than Arkema SA. However, Cisco Systems is 1.92 times less risky than Arkema SA. It trades about 0.29 of its potential returns per unit of risk. Arkema SA ADR is currently generating about -0.09 per unit of risk. If you would invest  4,932  in Cisco Systems on September 4, 2024 and sell it today you would earn a total of  1,011  from holding Cisco Systems or generate 20.5% return on investment over 90 days.

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

Cisco Systems  vs.  Arkema SA ADR

Cisco Systems

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 22 (%) 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.

Arkema SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arkema SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Cisco Systems and Arkema SA

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

The idea behind Cisco Systems and Arkema SA ADR 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.