Correlation Between Cisco Systems and GE Aerospace
Can any of the company-specific risk be diversified away by investing in both Cisco Systems and GE Aerospace 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 GE Aerospace into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cisco Systems and GE Aerospace, you can compare the effects of market volatilities on Cisco Systems and GE Aerospace 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 GE Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and GE Aerospace.
Diversification Opportunities for Cisco Systems and GE Aerospace
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cisco and GE Aerospace is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace 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 GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of Cisco Systems i.e., Cisco Systems and GE Aerospace go up and down completely randomly.
Pair Corralation between Cisco Systems and GE Aerospace
Given the investment horizon of 90 days Cisco Systems is expected to under-perform the GE Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, Cisco Systems is 2.17 times less risky than GE Aerospace. The stock trades about -0.08 of its potential returns per unit of risk. The GE Aerospace is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 13,856 in GE Aerospace on January 20, 2024 and sell it today you would earn a total of 950.00 from holding GE Aerospace or generate 6.86% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 95.45% |
Values | Daily Returns |
Cisco Systems vs. GE Aerospace
Performance |
Timeline |
Cisco Systems |
GE Aerospace |
Cisco Systems and GE Aerospace Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Cisco Systems and GE Aerospace
The main advantage of trading using opposite Cisco Systems and GE Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, GE Aerospace 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 GE Aerospace will offset losses from the drop in GE Aerospace's long position.Cisco Systems vs. Juniper Networks | Cisco Systems vs. Nokia Corp ADR | Cisco Systems vs. Motorola Solutions | Cisco Systems vs. Ciena Corp |
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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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