Correlation Between Cisco Systems and AUTONATION

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

By analyzing existing cross correlation between Cisco Systems and AUTONATION INC 38, you can compare the effects of market volatilities on Cisco Systems and AUTONATION 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 AUTONATION. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and AUTONATION.

Diversification Opportunities for Cisco Systems and AUTONATION

0.64

Correlation Coefficient

Cisco Systems  AUTONATION

Poor diversification

The 3 months correlation between Cisco and AUTONATION is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and AUTONATION INC 38 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AUTONATION INC 38 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 AUTONATION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AUTONATION INC 38 has no effect on the direction of Cisco Systems i.e., Cisco Systems and AUTONATION go up and down completely randomly.

Pair Corralation between Cisco Systems and AUTONATION

Given the investment horizon of 90 days Cisco Systems is expected to generate 1.57 times more return on investment than AUTONATION. However, Cisco Systems is 1.57 times more volatile than AUTONATION INC 38. It trades about 0.2 of its potential returns per unit of risk. AUTONATION INC 38 is currently generating about -0.07 per unit of risk. If you would invest  5,215  in Cisco Systems on October 7, 2024 and sell it today you would earn a total of  671.00  from holding Cisco Systems or generate 12.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.71%
Values	Daily Returns

Cisco Systems  vs.  AUTONATION INC 38

Cisco Systems

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in February 2025.

AUTONATION INC 38

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AUTONATION INC 38 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AUTONATION is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cisco Systems and AUTONATION

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

The idea behind Cisco Systems and AUTONATION INC 38 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.