Correlation Between Cisco Systems and Supernova Energy

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

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

Diversification Opportunities for Cisco Systems and Supernova Energy

-0.42

Correlation Coefficient

Cisco Systems  Supernova Energy

Very good diversification

The 3 months correlation between Cisco and Supernova is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Supernova Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Supernova Energy 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 Supernova Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Supernova Energy has no effect on the direction of Cisco Systems i.e., Cisco Systems and Supernova Energy go up and down completely randomly.

Pair Corralation between Cisco Systems and Supernova Energy

If you would invest  5,858  in Cisco Systems on December 21, 2024 and sell it today you would earn a total of  204.00  from holding Cisco Systems or generate 3.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

Cisco Systems  vs.  Supernova Energy

Cisco Systems

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Cisco Systems is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Supernova Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Supernova Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Supernova Energy is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Cisco Systems and Supernova Energy

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

The idea behind Cisco Systems and Supernova Energy 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.