Correlation Between ARC Document and Cisco Systems

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

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

Diversification Opportunities for ARC Document and Cisco Systems

0.71

Correlation Coefficient

ARC Document  Cisco Systems

Poor diversification

The 3 months correlation between ARC and Cisco is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding ARC Document Solutions and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and ARC Document 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 ARC Document Solutions 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 ARC Document i.e., ARC Document and Cisco Systems go up and down completely randomly.

Pair Corralation between ARC Document and Cisco Systems

Considering the 90-day investment horizon ARC Document Solutions is expected to generate 1.12 times more return on investment than Cisco Systems. However, ARC Document is 1.12 times more volatile than Cisco Systems. It trades about -0.02 of its potential returns per unit of risk. Cisco Systems is currently generating about -0.07 per unit of risk. If you would invest  270.00  in ARC Document Solutions on January 24, 2024 and sell it today you would lose (2.00) from holding ARC Document Solutions or give up 0.74% of portfolio value over 90 days.

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

ARC Document Solutions  vs.  Cisco Systems

ARC Document Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARC Document Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Cisco Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cisco Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Cisco Systems is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ARC Document and Cisco Systems

The main advantage of trading using opposite ARC Document and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARC Document 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 ARC Document Solutions 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.