Correlation Between Cisco Systems and Passage Bio

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

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

Diversification Opportunities for Cisco Systems and Passage Bio

0.08

Correlation Coefficient

Cisco Systems  Passage Bio

Significant diversification

The 3 months correlation between Cisco and Passage is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Passage Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Passage Bio 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 Passage Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Passage Bio has no effect on the direction of Cisco Systems i.e., Cisco Systems and Passage Bio go up and down completely randomly.

Pair Corralation between Cisco Systems and Passage Bio

Given the investment horizon of 90 days Cisco Systems is expected to generate 32.92 times less return on investment than Passage Bio. But when comparing it to its historical volatility, Cisco Systems is 24.96 times less risky than Passage Bio. It trades about 0.11 of its potential returns per unit of risk. Passage Bio is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  59.00  in Passage Bio on September 15, 2024 and sell it today you would earn a total of  19.00  from holding Passage Bio or generate 32.2% return on investment over 90 days.

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

Cisco Systems  vs.  Passage Bio

Cisco Systems

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Passage Bio

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Passage Bio are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Passage Bio reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and Passage Bio

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

The idea behind Cisco Systems and Passage Bio 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.