Correlation Between Cisco Systems and Adtalem Global

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

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

Diversification Opportunities for Cisco Systems and Adtalem Global

0.7

Correlation Coefficient

Cisco Systems  Adtalem Global

Poor diversification

The 3 months correlation between Cisco and Adtalem is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Adtalem Global Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adtalem Global Education 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 Adtalem Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adtalem Global Education has no effect on the direction of Cisco Systems i.e., Cisco Systems and Adtalem Global go up and down completely randomly.

Pair Corralation between Cisco Systems and Adtalem Global

Given the investment horizon of 90 days Cisco Systems is expected to generate 2.38 times less return on investment than Adtalem Global. But when comparing it to its historical volatility, Cisco Systems is 1.95 times less risky than Adtalem Global. It trades about 0.08 of its potential returns per unit of risk. Adtalem Global Education is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  8,841  in Adtalem Global Education on December 19, 2024 and sell it today you would earn a total of  1,104  from holding Adtalem Global Education or generate 12.49% return on investment over 90 days.

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

Cisco Systems  vs.  Adtalem Global Education

Cisco Systems

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 6 (%) 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.

Adtalem Global Education

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Adtalem Global Education are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Adtalem Global exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and Adtalem Global

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

The idea behind Cisco Systems and Adtalem Global Education 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.