Correlation Between Cisco Systems and Exxon
Can any of the company-specific risk be diversified away by investing in both Cisco Systems and Exxon 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 Exxon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cisco Systems and Exxon Mobil Corp, you can compare the effects of market volatilities on Cisco Systems and Exxon 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 Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and Exxon.
Diversification Opportunities for Cisco Systems and Exxon
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cisco and Exxon is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Exxon Mobil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil Corp 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil Corp has no effect on the direction of Cisco Systems i.e., Cisco Systems and Exxon go up and down completely randomly.
Pair Corralation between Cisco Systems and Exxon
Given the investment horizon of 90 days Cisco Systems is expected to generate 0.9 times more return on investment than Exxon. However, Cisco Systems is 1.11 times less risky than Exxon. It trades about 0.3 of its potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.15 per unit of risk. If you would invest 5,550 in Cisco Systems on September 2, 2024 and sell it today you would earn a total of 371.00 from holding Cisco Systems or generate 6.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cisco Systems vs. Exxon Mobil Corp
Performance |
| Timeline |
| Cisco Systems |
| Exxon Mobil Corp |
Cisco Systems and Exxon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cisco Systems and Exxon
The main advantage of trading using opposite Cisco Systems and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Exxon 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 Exxon will offset losses from the drop in Exxon's long position.| 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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