Correlation Between Cisco Systems and Knowles Cor

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

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

Diversification Opportunities for Cisco Systems and Knowles Cor

0.43

Correlation Coefficient

Cisco Systems  Knowles Cor

Very weak diversification

The 3 months correlation between Cisco and Knowles is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Knowles Cor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knowles Cor 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 Knowles Cor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knowles Cor has no effect on the direction of Cisco Systems i.e., Cisco Systems and Knowles Cor go up and down completely randomly.

Pair Corralation between Cisco Systems and Knowles Cor

Given the investment horizon of 90 days Cisco Systems is expected to under-perform the Knowles Cor. But the stock apears to be less risky and, when comparing its historical volatility, Cisco Systems is 1.33 times less risky than Knowles Cor. The stock trades about -0.08 of its potential returns per unit of risk. The Knowles Cor is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,543  in Knowles Cor on January 20, 2024 and sell it today you would lose (16.00) from holding Knowles Cor or give up 1.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Cisco Systems  vs.  Knowles Cor

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

Knowles Cor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knowles Cor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Cisco Systems and Knowles Cor

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

The idea behind Cisco Systems and Knowles Cor 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.