Correlation Between Cisco Systems and United Microelectronics

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

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

Diversification Opportunities for Cisco Systems and United Microelectronics

-0.88

Correlation Coefficient

Cisco Systems  United Microelectronics

Pay attention - limited upside

The 3 months correlation between Cisco and United is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and United Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Microelectronics 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 United Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Microelectronics has no effect on the direction of Cisco Systems i.e., Cisco Systems and United Microelectronics go up and down completely randomly.

Pair Corralation between Cisco Systems and United Microelectronics

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.56 times more return on investment than United Microelectronics. However, Cisco Systems is 1.79 times less risky than United Microelectronics. It trades about 0.08 of its potential returns per unit of risk. United Microelectronics is currently generating about -0.01 per unit of risk. If you would invest  4,783  in Cisco Systems on September 4, 2024 and sell it today you would earn a total of  1,165  from holding Cisco Systems or generate 24.36% return on investment over 90 days.

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

Cisco Systems  vs.  United Microelectronics

Cisco Systems

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

United Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Microelectronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Cisco Systems and United Microelectronics

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

The idea behind Cisco Systems and United Microelectronics 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.