Correlation Between Cisco Systems and AMERICAN

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

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

Diversification Opportunities for Cisco Systems and AMERICAN

0.57

Correlation Coefficient

Cisco Systems  AMERICAN

Very weak diversification

The 3 months correlation between Cisco and AMERICAN is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and AMERICAN FINL GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERICAN FINL GROUP 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 AMERICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERICAN FINL GROUP has no effect on the direction of Cisco Systems i.e., Cisco Systems and AMERICAN go up and down completely randomly.

Pair Corralation between Cisco Systems and AMERICAN

Given the investment horizon of 90 days Cisco Systems is expected to generate 2.28 times less return on investment than AMERICAN. In addition to that, Cisco Systems is 1.57 times more volatile than AMERICAN FINL GROUP. It trades about 0.03 of its total potential returns per unit of risk. AMERICAN FINL GROUP is currently generating about 0.09 per unit of volatility. If you would invest  8,268  in AMERICAN FINL GROUP on December 24, 2024 and sell it today you would earn a total of  342.00  from holding AMERICAN FINL GROUP or generate 4.14% return on investment over 90 days.

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

Cisco Systems  vs.  AMERICAN FINL GROUP

Cisco Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 2 (%) 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 recent stock price disarray, may contribute to short-term losses for the investors.

AMERICAN FINL GROUP

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AMERICAN FINL GROUP are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, AMERICAN is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cisco Systems and AMERICAN

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

The idea behind Cisco Systems and AMERICAN FINL GROUP 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .