Correlation Between Cisco Systems and Ecare Solutions

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

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

Diversification Opportunities for Cisco Systems and Ecare Solutions

-0.27

Correlation Coefficient

Cisco Systems  Ecare Solutions

Very good diversification

The 3 months correlation between Cisco and Ecare is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Ecare Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecare Solutions 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 Ecare Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecare Solutions has no effect on the direction of Cisco Systems i.e., Cisco Systems and Ecare Solutions go up and down completely randomly.

Pair Corralation between Cisco Systems and Ecare Solutions

Given the investment horizon of 90 days Cisco Systems is expected to under-perform the Ecare Solutions. But the stock apears to be less risky and, when comparing its historical volatility, Cisco Systems is 5.57 times less risky than Ecare Solutions. The stock trades about -0.02 of its potential returns per unit of risk. The Ecare Solutions is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  74.00  in Ecare Solutions on January 24, 2024 and sell it today you would earn a total of  14.00  from holding Ecare Solutions or generate 18.92% return on investment over 90 days.

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

Cisco Systems  vs.  Ecare Solutions

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.

Ecare Solutions

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ecare Solutions are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Ecare Solutions may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Cisco Systems and Ecare Solutions

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

The idea behind Cisco Systems and Ecare Solutions 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.

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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.