Correlation Between Cisco Systems and GENERAL

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

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

Diversification Opportunities for Cisco Systems and GENERAL

0.21

Correlation Coefficient

Cisco Systems  GENERAL

Modest diversification

The 3 months correlation between Cisco and GENERAL is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Cisco Systems i.e., Cisco Systems and GENERAL go up and down completely randomly.

Pair Corralation between Cisco Systems and GENERAL

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.8 times more return on investment than GENERAL. However, Cisco Systems is 1.24 times less risky than GENERAL. It trades about 0.06 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about 0.03 per unit of risk. If you would invest  4,401  in Cisco Systems on October 11, 2024 and sell it today you would earn a total of  1,519  from holding Cisco Systems or generate 34.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	41.62%
Values	Daily Returns

Cisco Systems  vs.  GENERAL ELEC CAP

Cisco Systems

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in February 2025.

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Cisco Systems and GENERAL

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

The idea behind Cisco Systems and GENERAL ELEC CAP 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.