Correlation Between Cisco Systems and MicroSectorsTM Oil

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

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

Diversification Opportunities for Cisco Systems and MicroSectorsTM Oil

0.27

Correlation Coefficient

Cisco Systems  MicroSectorsTM Oil

Modest diversification

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

Pair Corralation between Cisco Systems and MicroSectorsTM Oil

Given the investment horizon of 90 days Cisco Systems is expected to under-perform the MicroSectorsTM Oil. But the stock apears to be less risky and, when comparing its historical volatility, Cisco Systems is 2.6 times less risky than MicroSectorsTM Oil. The stock trades about -0.09 of its potential returns per unit of risk. The MicroSectorsTM Oil Gas is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,279  in MicroSectorsTM Oil Gas on February 6, 2024 and sell it today you would earn a total of  196.00  from holding MicroSectorsTM Oil Gas or generate 15.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cisco Systems  vs.  MicroSectorsTM Oil Gas

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.

MicroSectorsTM Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectorsTM Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's essential indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with Cisco Systems and MicroSectorsTM Oil

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

The idea behind Cisco Systems and MicroSectorsTM Oil Gas 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.