Correlation Between Hewlett Packard and Cisco Systems

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

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

Diversification Opportunities for Hewlett Packard and Cisco Systems

0.43

Correlation Coefficient

Hewlett Packard  Cisco Systems

Very weak diversification

The 3 months correlation between Hewlett and Cisco is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Hewlett Packard Enterprise and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Hewlett Packard 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 Hewlett Packard Enterprise 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 Hewlett Packard i.e., Hewlett Packard and Cisco Systems go up and down completely randomly.

Pair Corralation between Hewlett Packard and Cisco Systems

Assuming the 90 days horizon Hewlett Packard Enterprise is expected to under-perform the Cisco Systems. In addition to that, Hewlett Packard is 2.15 times more volatile than Cisco Systems. It trades about -0.17 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.0 per unit of volatility. If you would invest  5,649  in Cisco Systems on December 29, 2024 and sell it today you would lose (28.00) from holding Cisco Systems or give up 0.5% of portfolio value over 90 days.

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

Hewlett Packard Enterprise  vs.  Cisco Systems

Hewlett Packard Ente

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hewlett Packard Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Cisco Systems

Risk-Adjusted Performance

Weak

Over the last 90 days Cisco Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Cisco Systems is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Hewlett Packard and Cisco Systems

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

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.