Correlation Between Cisco Systems and Home Depot

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

Diversification Opportunities for Cisco Systems and Home Depot

0.4
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Cisco and Home Depot is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Cisco Systems i.e., Cisco Systems and Home Depot go up and down completely randomly.

Pair Corralation between Cisco Systems and Home Depot

Given the investment horizon of 90 days Cisco Systems is expected to under-perform the Home Depot. In addition to that, Cisco Systems is 1.03 times more volatile than Home Depot. It trades about -0.04 of its total potential returns per unit of risk. Home Depot is currently generating about -0.03 per unit of volatility. If you would invest  34,726  in Home Depot on May 13, 2022 and sell it today you would lose (3,325)  from holding Home Depot or give up 9.57% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Cisco Systems  vs.  Home Depot

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

Cisco Price Channel

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

Home Depot Price Channel

Cisco Systems and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and Home Depot

The main advantage of trading using opposite Cisco Systems and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.
The idea behind Cisco Systems and Home Depot 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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