Correlation Between BK Technologies and Cisco Systems

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

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

Diversification Opportunities for BK Technologies and Cisco Systems

0.82

Correlation Coefficient

BK Technologies  Cisco Systems

Very poor diversification

The 3 months correlation between BKTI and Cisco is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding BK Technologies and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and BK Technologies 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 BK Technologies 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 BK Technologies i.e., BK Technologies and Cisco Systems go up and down completely randomly.

Pair Corralation between BK Technologies and Cisco Systems

Given the investment horizon of 90 days BK Technologies is expected to generate 5.01 times more return on investment than Cisco Systems. However, BK Technologies is 5.01 times more volatile than Cisco Systems. It trades about 0.15 of its potential returns per unit of risk. Cisco Systems is currently generating about 0.14 per unit of risk. If you would invest  2,620  in BK Technologies on October 6, 2024 and sell it today you would earn a total of  708.00  from holding BK Technologies or generate 27.02% return on investment over 90 days.

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

BK Technologies  vs.  Cisco Systems

BK Technologies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BK Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, BK Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Cisco Systems

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BK Technologies and Cisco Systems

The main advantage of trading using opposite BK Technologies and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BK Technologies 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 BK Technologies 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.