Correlation Between Cisco Systems and Relief Therapeutics

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

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

Diversification Opportunities for Cisco Systems and Relief Therapeutics

0.67

Correlation Coefficient

Cisco Systems  Relief Therapeutics

Poor diversification

The 3 months correlation between Cisco and Relief is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Relief Therapeutics Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relief Therapeutics 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 Relief Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Relief Therapeutics has no effect on the direction of Cisco Systems i.e., Cisco Systems and Relief Therapeutics go up and down completely randomly.

Pair Corralation between Cisco Systems and Relief Therapeutics

Given the investment horizon of 90 days Cisco Systems is expected to generate 5.13 times less return on investment than Relief Therapeutics. But when comparing it to its historical volatility, Cisco Systems is 11.17 times less risky than Relief Therapeutics. It trades about 0.27 of its potential returns per unit of risk. Relief Therapeutics Holding is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  254.00  in Relief Therapeutics Holding on September 13, 2024 and sell it today you would earn a total of  183.00  from holding Relief Therapeutics Holding or generate 72.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Cisco Systems  vs.  Relief Therapeutics Holding

Cisco Systems

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 21 (%) 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.

Relief Therapeutics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Relief Therapeutics Holding are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Relief Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and Relief Therapeutics

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

The idea behind Cisco Systems and Relief Therapeutics Holding 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.