Correlation Between Cisco Systems and Edgio

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

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

Diversification Opportunities for Cisco Systems and Edgio

-0.84

Correlation Coefficient

Cisco Systems  Edgio

Pay attention - limited upside

The 3 months correlation between Cisco and Edgio is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Edgio Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edgio Inc 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 Edgio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edgio Inc has no effect on the direction of Cisco Systems i.e., Cisco Systems and Edgio go up and down completely randomly.

Pair Corralation between Cisco Systems and Edgio

Given the investment horizon of 90 days Cisco Systems is expected to generate 119.0 times less return on investment than Edgio. But when comparing it to its historical volatility, Cisco Systems is 73.95 times less risky than Edgio. It trades about 0.05 of its potential returns per unit of risk. Edgio Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,280  in Edgio Inc on October 5, 2024 and sell it today you would lose (3,278) from holding Edgio Inc or give up 99.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	93.63%
Values	Daily Returns

Cisco Systems  vs.  Edgio Inc

Cisco Systems

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 15 (%) 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.

Edgio Inc

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Edgio Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak forward indicators, Edgio displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and Edgio

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

The idea behind Cisco Systems and Edgio Inc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.