Correlation Between First Trust and Cisco Systems
Can any of the company-specific risk be diversified away by investing in both First Trust 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 First Trust and Cisco Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Japan and Cisco Systems, you can compare the effects of market volatilities on First Trust 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 First Trust with a short position of Cisco Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Cisco Systems.
Diversification Opportunities for First Trust and Cisco Systems
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between First and Cisco is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Japan and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and First Trust 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 First Trust Japan 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 First Trust i.e., First Trust and Cisco Systems go up and down completely randomly.
Pair Corralation between First Trust and Cisco Systems
Considering the 90-day investment horizon First Trust Japan is expected to under-perform the Cisco Systems. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Japan is 1.24 times less risky than Cisco Systems. The etf trades about -0.23 of its potential returns per unit of risk. The Cisco Systems is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 4,915 in Cisco Systems on January 26, 2024 and sell it today you would lose (80.00) from holding Cisco Systems or give up 1.63% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Japan vs. Cisco Systems
Performance |
| Timeline |
| First Trust Japan |
| Cisco Systems |
First Trust and Cisco Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Cisco Systems
The main advantage of trading using opposite First Trust and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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.| First Trust vs. WisdomTree Europe Hedged | First Trust vs. WisdomTree Europe SmallCap | First Trust vs. iShares MSCI Germany |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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