Correlation Between Cisco Systems and ECGI Holdings

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

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

Diversification Opportunities for Cisco Systems and ECGI Holdings

-0.54

Correlation Coefficient

Cisco Systems  ECGI Holdings

Excellent diversification

The 3 months correlation between Cisco and ECGI is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and ECGI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECGI Holdings 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 ECGI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECGI Holdings has no effect on the direction of Cisco Systems i.e., Cisco Systems and ECGI Holdings go up and down completely randomly.

Pair Corralation between Cisco Systems and ECGI Holdings

Given the investment horizon of 90 days Cisco Systems is expected to generate 18.2 times less return on investment than ECGI Holdings. But when comparing it to its historical volatility, Cisco Systems is 17.56 times less risky than ECGI Holdings. It trades about 0.06 of its potential returns per unit of risk. ECGI Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5.40  in ECGI Holdings on October 11, 2024 and sell it today you would lose (5.30) from holding ECGI Holdings or give up 98.15% of portfolio value over 90 days.

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

Cisco Systems  vs.  ECGI Holdings

Cisco Systems

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 12 (%) 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 February 2025.

ECGI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECGI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly unsteady technical and fundamental indicators, ECGI Holdings may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Cisco Systems and ECGI Holdings

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

The idea behind Cisco Systems and ECGI Holdings 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.