Correlation Between Cisco Systems and CITIC

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

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

Diversification Opportunities for Cisco Systems and CITIC

0.78

Correlation Coefficient

Cisco Systems  CITIC

Poor diversification

The 3 months correlation between Cisco and CITIC is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and CITIC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Limited 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 CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Limited has no effect on the direction of Cisco Systems i.e., Cisco Systems and CITIC go up and down completely randomly.

Pair Corralation between Cisco Systems and CITIC

Given the investment horizon of 90 days Cisco Systems is expected to generate 5.08 times less return on investment than CITIC. But when comparing it to its historical volatility, Cisco Systems is 5.87 times less risky than CITIC. It trades about 0.05 of its potential returns per unit of risk. CITIC Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  100.00  in CITIC Limited on September 3, 2024 and sell it today you would earn a total of  10.00  from holding CITIC Limited or generate 10.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	67.47%
Values	Daily Returns

Cisco Systems  vs.  CITIC Limited

Cisco Systems

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 21 (%) 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.

CITIC Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental indicators, CITIC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and CITIC

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

The idea behind Cisco Systems and CITIC Limited 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.