Correlation Between American Express and Cisco Systems
Can any of the company-specific risk be diversified away by investing in both American Express 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 American Express and Cisco Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and Cisco Systems, you can compare the effects of market volatilities on American Express 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 American Express with a short position of Cisco Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Cisco Systems.
Diversification Opportunities for American Express and Cisco Systems
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Cisco is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and American Express 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 American Express 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 American Express i.e., American Express and Cisco Systems go up and down completely randomly.
Pair Corralation between American Express and Cisco Systems
Considering the 90-day investment horizon American Express is expected to generate 1.22 times more return on investment than Cisco Systems. However, American Express is 1.22 times more volatile than Cisco Systems. It trades about 0.13 of its potential returns per unit of risk. Cisco Systems is currently generating about 0.07 per unit of risk. If you would invest 15,043 in American Express on August 31, 2024 and sell it today you would earn a total of 15,382 from holding American Express or generate 102.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Express vs. Cisco Systems
Performance |
| Timeline |
| American Express |
| Cisco Systems |
American Express and Cisco Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Express and Cisco Systems
The main advantage of trading using opposite American Express and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express 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.| American Express vs. Visa Class A | American Express vs. RLJ Lodging Trust | American Express vs. Aquagold International | American Express vs. Stepstone Group |
| Cisco Systems vs. Juniper Networks | Cisco Systems vs. Nokia Corp ADR | Cisco Systems vs. Motorola Solutions | Cisco Systems vs. Ciena Corp |
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 the Equity Valuation module to check real value of public entities based on technical and fundamental data.
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