Correlation Between Cisco Systems and FEDEX

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

Diversification Opportunities for Cisco Systems and FEDEX

-0.57
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Cisco and FEDEX is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and FEDEX P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FEDEX P 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 FEDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FEDEX P has no effect on the direction of Cisco Systems i.e., Cisco Systems and FEDEX go up and down completely randomly.

Pair Corralation between Cisco Systems and FEDEX

Given the investment horizon of 90 days Cisco Systems is expected to generate 64.44 times less return on investment than FEDEX. But when comparing it to its historical volatility, Cisco Systems is 64.19 times less risky than FEDEX. It trades about 0.07 of its potential returns per unit of risk. FEDEX P is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  7,528  in FEDEX P on August 30, 2024 and sell it today you would lose (22.00) from holding FEDEX P or give up 0.29% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy87.06%
ValuesDaily Returns

Cisco Systems  vs.  FEDEX P

 Performance 
       Timeline  
Cisco Systems 

Risk-Adjusted Performance

20 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.
FEDEX P 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Modest
Over the last 90 days FEDEX P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, FEDEX is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cisco Systems and FEDEX Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and FEDEX

The main advantage of trading using opposite Cisco Systems and FEDEX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, FEDEX 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 FEDEX will offset losses from the drop in FEDEX's long position.
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The idea behind Cisco Systems and FEDEX P 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.
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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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