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 DYNAMICS P, 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

0.61

Correlation Coefficient

Cisco Systems  GENERAL

Poor diversification

The 3 months correlation between Cisco and GENERAL is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and GENERAL DYNAMICS P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL DYNAMICS P 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 DYNAMICS P 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 0.25 times more return on investment than GENERAL. However, Cisco Systems is 4.07 times less risky than GENERAL. It trades about 0.57 of its potential returns per unit of risk. GENERAL DYNAMICS P is currently generating about -0.36 per unit of risk. If you would invest  4,842  in Cisco Systems on July 12, 2024 and sell it today you would earn a total of  514.00  from holding Cisco Systems or generate 10.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	47.83%
Values	Daily Returns

Cisco Systems  vs.  GENERAL DYNAMICS P

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 unfluctuating fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

GENERAL DYNAMICS P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL DYNAMICS P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in November 2024. The current disturbance may also be a sign of long term up-swing for GENERAL DYNAMICS P 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 DYNAMICS P 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.