Correlation Between Cisco Systems and Knowles
Can any of the company-specific risk be diversified away by investing in both Cisco Systems and Knowles 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 Knowles into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cisco Systems and Knowles, you can compare the effects of market volatilities on Cisco Systems and Knowles 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 Knowles. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and Knowles.
Diversification Opportunities for Cisco Systems and Knowles
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cisco and Knowles is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Knowles in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knowles 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 Knowles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knowles has no effect on the direction of Cisco Systems i.e., Cisco Systems and Knowles go up and down completely randomly.
Pair Corralation between Cisco Systems and Knowles
Assuming the 90 days trading horizon Cisco Systems is expected to generate 1.26 times less return on investment than Knowles. But when comparing it to its historical volatility, Cisco Systems is 1.91 times less risky than Knowles. It trades about 0.4 of its potential returns per unit of risk. Knowles is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 1,590 in Knowles on September 1, 2024 and sell it today you would earn a total of 230.00 from holding Knowles or generate 14.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Cisco Systems vs. Knowles
Performance |
| Timeline |
| Cisco Systems |
| Knowles |
Cisco Systems and Knowles Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cisco Systems and Knowles
The main advantage of trading using opposite Cisco Systems and Knowles positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Knowles 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 Knowles will offset losses from the drop in Knowles' long position.| Cisco Systems vs. Fevertree Drinks PLC | Cisco Systems vs. SPORTING | Cisco Systems vs. BII Railway Transportation | Cisco Systems vs. China Resources Beer |
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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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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