Correlation Between Cisco Systems and Chevron Corp

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Can any of the company-specific risk be diversified away by investing in both Cisco Systems and Chevron Corp 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 Chevron Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cisco Systems and Chevron Corp, you can compare the effects of market volatilities on Cisco Systems and Chevron Corp 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 Chevron Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and Chevron Corp.

Diversification Opportunities for Cisco Systems and Chevron Corp

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Cisco and Chevron is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Cisco Systems i.e., Cisco Systems and Chevron Corp go up and down completely randomly.

Pair Corralation between Cisco Systems and Chevron Corp

Given the investment horizon of 90 days Cisco Systems is expected to under-perform the Chevron Corp. But the stock apears to be less risky and, when comparing its historical volatility, Cisco Systems is 1.38 times less risky than Chevron Corp. The stock trades about -0.33 of its potential returns per unit of risk. The Chevron Corp is currently generating about -0.2 of returns per unit of risk over similar time horizon. If you would invest  15,712  in Chevron Corp on July 5, 2022 and sell it today you would lose (1,345)  from holding Chevron Corp or give up 8.56% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Cisco Systems  vs.  Chevron Corp

 Performance (%) 
       Timeline  
Cisco Systems 
Cisco Performance
0 of 100
Over the last 90 days Cisco Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Cisco Systems is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Cisco Price Channel

Chevron Corp 
Chevron Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chevron Price Channel

Cisco Systems and Chevron Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and Chevron Corp

The main advantage of trading using opposite Cisco Systems and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Chevron Corp 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 Chevron Corp will offset losses from the drop in Chevron Corp's long position.
Cisco Systems vs. Amazon Inc
The idea behind Cisco Systems and Chevron Corp 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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