Correlation Between Cisco Systems and Ocean Biomedical

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

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

Diversification Opportunities for Cisco Systems and Ocean Biomedical

-0.44

Correlation Coefficient

Cisco Systems  Ocean Biomedical

Very good diversification

The 3 months correlation between Cisco and Ocean is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Ocean Biomedical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocean Biomedical 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 Ocean Biomedical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocean Biomedical has no effect on the direction of Cisco Systems i.e., Cisco Systems and Ocean Biomedical go up and down completely randomly.

Pair Corralation between Cisco Systems and Ocean Biomedical

Given the investment horizon of 90 days Cisco Systems is expected to generate 5.49 times less return on investment than Ocean Biomedical. But when comparing it to its historical volatility, Cisco Systems is 22.38 times less risky than Ocean Biomedical. It trades about 0.26 of its potential returns per unit of risk. Ocean Biomedical is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Ocean Biomedical on October 23, 2024 and sell it today you would earn a total of  0.01  from holding Ocean Biomedical or generate 0.33% return on investment over 90 days.

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

Cisco Systems  vs.  Ocean Biomedical

Cisco Systems

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 11 (%) 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.

Ocean Biomedical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ocean Biomedical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Ocean Biomedical is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Cisco Systems and Ocean Biomedical

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

The idea behind Cisco Systems and Ocean Biomedical 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.