Correlation Between Cisco Systems and Xtra Energy

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

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

Diversification Opportunities for Cisco Systems and Xtra Energy

-0.31

Correlation Coefficient

Cisco Systems  Xtra Energy

Very good diversification

The 3 months correlation between Cisco and Xtra is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Xtra Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtra Energy Corp 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 Xtra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtra Energy Corp has no effect on the direction of Cisco Systems i.e., Cisco Systems and Xtra Energy go up and down completely randomly.

Pair Corralation between Cisco Systems and Xtra Energy

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.15 times more return on investment than Xtra Energy. However, Cisco Systems is 6.82 times less risky than Xtra Energy. It trades about 0.29 of its potential returns per unit of risk. Xtra Energy Corp is currently generating about 0.02 per unit of risk. If you would invest  4,932  in Cisco Systems on September 4, 2024 and sell it today you would earn a total of  1,011  from holding Cisco Systems or generate 20.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Cisco Systems  vs.  Xtra Energy Corp

Cisco Systems

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 23 (%) 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.

Xtra Energy Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xtra Energy Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Xtra Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cisco Systems and Xtra Energy

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

The idea behind Cisco Systems and Xtra Energy Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.