Correlation Between Boeing and Cisco Systems

Can any of the company-specific risk be diversified away by investing in both Boeing 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 Boeing and Cisco Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Boeing and Cisco Systems, you can compare the effects of market volatilities on Boeing 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 Boeing with a short position of Cisco Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boeing and Cisco Systems.

Diversification Opportunities for Boeing and Cisco Systems

0.39

Correlation Coefficient

Boeing  Cisco Systems

Weak diversification

The 3 months correlation between Boeing and Cisco is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding The Boeing and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Boeing 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 The Boeing 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 Boeing i.e., Boeing and Cisco Systems go up and down completely randomly.

Pair Corralation between Boeing and Cisco Systems

Allowing for the 90-day total investment horizon The Boeing is expected to under-perform the Cisco Systems. In addition to that, Boeing is 1.56 times more volatile than Cisco Systems. It trades about -0.02 of its total potential returns per unit of risk. Cisco Systems is currently generating about -0.01 per unit of volatility. If you would invest  4,909  in Cisco Systems on February 5, 2024 and sell it today you would lose (197.00) from holding Cisco Systems or give up 4.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

The Boeing  vs.  Cisco Systems

Boeing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Boeing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Cisco Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cisco Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Cisco Systems is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Boeing and Cisco Systems

The main advantage of trading using opposite Boeing and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boeing 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.

The idea behind The Boeing and Cisco Systems 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.