Correlation Between Cisco Systems and Adobe Systems

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

Diversification Opportunities for Cisco Systems and Adobe Systems

0.42
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Cisco and Adobe is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Adobe Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems 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 Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems has no effect on the direction of Cisco Systems i.e., Cisco Systems and Adobe Systems go up and down completely randomly.

Pair Corralation between Cisco Systems and Adobe Systems

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.69 times more return on investment than Adobe Systems. However, Cisco Systems is 1.44 times less risky than Adobe Systems. It trades about 0.04 of its potential returns per unit of risk. Adobe Systems is currently generating about 0.0 per unit of risk. If you would invest  3,678  in Cisco Systems on May 14, 2022 and sell it today you would earn a total of  969.00  from holding Cisco Systems or generate 26.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Cisco Systems  vs.  Adobe Systems

 Performance (%) 
       Timeline  
Cisco Systems 
Cisco Performance
0 of 100
Over the last 90 days Cisco Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Cisco Systems is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Cisco Price Channel

Adobe Systems 
Adobe Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Adobe Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal fundamental drivers, Adobe Systems may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Adobe Price Channel

Cisco Systems and Adobe Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and Adobe Systems

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

Cisco Systems

Pair trading matchups for Cisco Systems

The idea behind Cisco Systems and Adobe 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.

Adobe Systems

Pair trading matchups for Adobe Systems

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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

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