Correlation Between Cisco Systems and InsCorp

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

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

Diversification Opportunities for Cisco Systems and InsCorp

0.81

Correlation Coefficient

Cisco Systems  InsCorp

Very poor diversification

The 3 months correlation between Cisco and InsCorp is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and InsCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InsCorp 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 InsCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InsCorp has no effect on the direction of Cisco Systems i.e., Cisco Systems and InsCorp go up and down completely randomly.

Pair Corralation between Cisco Systems and InsCorp

Given the investment horizon of 90 days Cisco Systems is expected to generate 1.68 times more return on investment than InsCorp. However, Cisco Systems is 1.68 times more volatile than InsCorp. It trades about 0.2 of its potential returns per unit of risk. InsCorp is currently generating about 0.08 per unit of risk. If you would invest  5,215  in Cisco Systems on October 6, 2024 and sell it today you would earn a total of  671.00  from holding Cisco Systems or generate 12.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Cisco Systems  vs.  InsCorp

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 displayed solid returns over the last few months and may actually be approaching a breakup point.

InsCorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in InsCorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, InsCorp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Cisco Systems and InsCorp

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

The idea behind Cisco Systems and InsCorp 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 Commodity Directory module to find actively traded commodities issued by global exchanges.