Correlation Between Cisco Systems and JD Bancshares

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

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

Diversification Opportunities for Cisco Systems and JD Bancshares

0.85

Correlation Coefficient

Cisco Systems  JD Bancshares

Very poor diversification

The 3 months correlation between Cisco and JDVB is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and JD Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Bancshares 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 JD Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Bancshares has no effect on the direction of Cisco Systems i.e., Cisco Systems and JD Bancshares go up and down completely randomly.

Pair Corralation between Cisco Systems and JD Bancshares

Given the investment horizon of 90 days Cisco Systems is expected to generate 14.82 times less return on investment than JD Bancshares. But when comparing it to its historical volatility, Cisco Systems is 1.24 times less risky than JD Bancshares. It trades about 0.02 of its potential returns per unit of risk. JD Bancshares is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,350  in JD Bancshares on September 21, 2024 and sell it today you would earn a total of  100.00  from holding JD Bancshares or generate 4.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Cisco Systems  vs.  JD Bancshares

Cisco Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in January 2025.

JD Bancshares

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JD Bancshares are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, JD Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cisco Systems and JD Bancshares

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

The idea behind Cisco Systems and JD Bancshares 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.