Correlation Between Apple and Cisco Systems

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

Diversification Opportunities for Apple and Cisco Systems

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Apple and Cisco is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Apple 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 Apple Inc are associated (or correlated) with Cisco Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisco Systems has no effect on the direction of Apple i.e., Apple and Cisco Systems go up and down completely randomly.

Pair Corralation between Apple and Cisco Systems

Given the investment horizon of 90 days Apple Inc is expected to under-perform the Cisco Systems. In addition to that, Apple is 1.51 times more volatile than Cisco Systems. It trades about -0.07 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.16 per unit of volatility. If you would invest  4,564  in Cisco Systems on August 29, 2022 and sell it today you would earn a total of  276.00  from holding Cisco Systems or generate 6.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Apple Inc  vs.  Cisco Systems

 Performance (%) 
       Timeline  
Apple Inc 
Apple Performance
0 of 100
Over the last 90 days Apple Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Apple is not utilizing all of its potentials. The new stock price chaos, may contribute to medium-term losses for the stakeholders.

Apple Price Channel

Cisco Systems 
Cisco Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in December 2022.

Cisco Price Channel

Apple and Cisco Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Apple and Cisco Systems

The main advantage of trading using opposite Apple and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple position performs unexpectedly, Cisco Systems 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 Cisco Systems will offset losses from the drop in Cisco Systems' long position.
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The idea behind Apple Inc and Cisco Systems 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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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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

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