Correlation Between Cisco Systems and Covalon Technologies

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

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

Diversification Opportunities for Cisco Systems and Covalon Technologies

-0.68

Correlation Coefficient

Cisco Systems  Covalon Technologies

Excellent diversification

The 3 months correlation between Cisco and Covalon is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Covalon Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covalon Technologies 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 Covalon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covalon Technologies has no effect on the direction of Cisco Systems i.e., Cisco Systems and Covalon Technologies go up and down completely randomly.

Pair Corralation between Cisco Systems and Covalon Technologies

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.29 times more return on investment than Covalon Technologies. However, Cisco Systems is 3.51 times less risky than Covalon Technologies. It trades about 0.2 of its potential returns per unit of risk. Covalon Technologies is currently generating about -0.09 per unit of risk. If you would invest  5,870  in Cisco Systems on December 2, 2024 and sell it today you would earn a total of  541.00  from holding Cisco Systems or generate 9.22% 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.  Covalon Technologies

Cisco Systems

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Covalon Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Covalon Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Cisco Systems and Covalon Technologies

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

The idea behind Cisco Systems and Covalon Technologies 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.