Correlation Between Cisco Systems and Ability

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

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

Diversification Opportunities for Cisco Systems and Ability

-0.58

Correlation Coefficient

Cisco Systems  Ability

Excellent diversification

The 3 months correlation between Cisco and Ability is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Ability in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ability 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 Ability. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ability has no effect on the direction of Cisco Systems i.e., Cisco Systems and Ability go up and down completely randomly.

Pair Corralation between Cisco Systems and Ability

Given the investment horizon of 90 days Cisco Systems is expected to generate 29.6 times less return on investment than Ability. But when comparing it to its historical volatility, Cisco Systems is 19.37 times less risky than Ability. It trades about 0.05 of its potential returns per unit of risk. Ability is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.02  in Ability on January 19, 2024 and sell it today you would earn a total of  0.00  from holding Ability or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	23.92%
Values	Daily Returns

Cisco Systems  vs.  Ability

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 current stock price disarray, may contribute to short-term losses for the investors.

Ability

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ability has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Ability is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cisco Systems and Ability

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

The idea behind Cisco Systems and Ability 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.