Correlation Between Innovator IBD and Cisco Systems

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

By analyzing existing cross correlation between Innovator IBD 50 and Cisco Systems, you can compare the effects of market volatilities on Innovator IBD and Cisco Systems 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 Innovator IBD with a short position of Cisco Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator IBD and Cisco Systems.

Diversification Opportunities for Innovator IBD and Cisco Systems

0.66

Correlation Coefficient

Innovator IBD  Cisco Systems

Poor diversification

The 3 months correlation between Innovator and Cisco is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Innovator IBD 50 and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Innovator IBD 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 Innovator IBD 50 are associated (or correlated) with Cisco Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisco Systems has no effect on the direction of Innovator IBD i.e., Innovator IBD and Cisco Systems go up and down completely randomly.

Pair Corralation between Innovator IBD and Cisco Systems

Given the investment horizon of 90 days Innovator IBD 50 is expected to generate 2.57 times more return on investment than Cisco Systems. However, Innovator IBD is 2.57 times more volatile than Cisco Systems. It trades about 0.05 of its potential returns per unit of risk. Cisco Systems is currently generating about 0.08 per unit of risk. If you would invest  2,892  in Innovator IBD 50 on October 7, 2024 and sell it today you would earn a total of  101.00  from holding Innovator IBD 50 or generate 3.49% return on investment over 90 days.

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

Innovator IBD 50  vs.  Cisco Systems

Innovator IBD 50

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator IBD 50 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Innovator IBD may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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.

Pair Trading with Innovator IBD and Cisco Systems

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

The idea behind Innovator IBD 50 and Cisco Systems 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.