Correlation Between Cisco Systems and KROGER

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

By analyzing existing cross correlation between Cisco Systems and KROGER 75 percent, you can compare the effects of market volatilities on Cisco Systems and KROGER 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 KROGER. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and KROGER.

Diversification Opportunities for Cisco Systems and KROGER

-0.56

Correlation Coefficient

Cisco Systems  KROGER

Excellent diversification

The 3 months correlation between Cisco and KROGER is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and KROGER 75 percent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KROGER 75 percent 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 KROGER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KROGER 75 percent has no effect on the direction of Cisco Systems i.e., Cisco Systems and KROGER go up and down completely randomly.

Pair Corralation between Cisco Systems and KROGER

Given the investment horizon of 90 days Cisco Systems is expected to generate 2.24 times more return on investment than KROGER. However, Cisco Systems is 2.24 times more volatile than KROGER 75 percent. It trades about 0.27 of its potential returns per unit of risk. KROGER 75 percent is currently generating about -0.15 per unit of risk. If you would invest  4,923  in Cisco Systems on September 12, 2024 and sell it today you would earn a total of  936.00  from holding Cisco Systems or generate 19.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	76.56%
Values	Daily Returns

Cisco Systems  vs.  KROGER 75 percent

Cisco Systems

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

KROGER 75 percent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KROGER 75 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, KROGER 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 KROGER

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

The idea behind Cisco Systems and KROGER 75 percent 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.