Correlation Between Cisco Systems and B of A

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

Diversification Opportunities for Cisco Systems and B of A

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Cisco and B of A is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Bank Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Of America 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 B of A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Of America has no effect on the direction of Cisco Systems i.e., Cisco Systems and B of A go up and down completely randomly.

Pair Corralation between Cisco Systems and B of A

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.61 times more return on investment than B of A. However, Cisco Systems is 1.63 times less risky than B of A. It trades about 0.13 of its potential returns per unit of risk. Bank Of America is currently generating about 0.07 per unit of risk. If you would invest  4,256  in Cisco Systems on May 20, 2022 and sell it today you would earn a total of  410.00  from holding Cisco Systems or generate 9.63% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Cisco Systems  vs.  Bank Of America

 Performance (%) 
       Timeline  
Cisco Systems 
Cisco Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Cisco Price Channel

Bank Of America 
B of A Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Of America are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, B of A may actually be approaching a critical reversion point that can send shares even higher in September 2022.

B of A Price Channel

Cisco Systems and B of A Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and B of A

The main advantage of trading using opposite Cisco Systems and B of A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, B of A 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 B of A will offset losses from the drop in B of A's long position.
The idea behind Cisco Systems and Bank Of America 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.
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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