Correlation Between Cisco Systems and Akamai Technologies

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

Diversification Opportunities for Cisco Systems and Akamai Technologies

0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Cisco and Akamai is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Akamai Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akamai Technologies 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 Akamai Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Akamai Technologies has no effect on the direction of Cisco Systems i.e., Cisco Systems and Akamai Technologies go up and down completely randomly.

Pair Corralation between Cisco Systems and Akamai Technologies

Given the investment horizon of 90 days Cisco Systems is expected to generate 1.04 times less return on investment than Akamai Technologies. But when comparing it to its historical volatility, Cisco Systems is 1.2 times less risky than Akamai Technologies. It trades about 0.33 of its potential returns per unit of risk. Akamai Technologies is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  8,683  in Akamai Technologies on May 15, 2022 and sell it today you would earn a total of  912.00  from holding Akamai Technologies or generate 10.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Cisco Systems  vs.  Akamai Technologies

 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 new stock price mess, may contribute to short-term losses for the institutional investors.

Cisco Price Channel

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

Akamai Price Channel

Cisco Systems and Akamai Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and Akamai Technologies

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

Cisco Systems

Pair trading matchups for Cisco Systems

The idea behind Cisco Systems and Akamai Technologies 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.

Akamai Technologies

Pair trading matchups for Akamai Technologies

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Akamai Technologies as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Akamai Technologies' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Akamai Technologies' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Akamai Technologies.
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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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