Correlation Between Cisco Systems and ZTE

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

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

Diversification Opportunities for Cisco Systems and ZTE

0.62

Correlation Coefficient

Cisco Systems  ZTE

Poor diversification

The 3 months correlation between Cisco and ZTE is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and ZTE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZTE Corporation 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 ZTE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZTE Corporation has no effect on the direction of Cisco Systems i.e., Cisco Systems and ZTE go up and down completely randomly.

Pair Corralation between Cisco Systems and ZTE

Assuming the 90 days trading horizon Cisco Systems is expected to under-perform the ZTE. But the stock apears to be less risky and, when comparing its historical volatility, Cisco Systems is 3.58 times less risky than ZTE. The stock trades about 0.0 of its potential returns per unit of risk. The ZTE Corporation is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  304.00  in ZTE Corporation on December 29, 2024 and sell it today you would lose (16.00) from holding ZTE Corporation or give up 5.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Cisco Systems  vs.  ZTE Corp.

Cisco Systems

Risk-Adjusted Performance

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 comparatively stable basic indicators, Cisco Systems is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

ZTE Corporation

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Cisco Systems and ZTE

The main advantage of trading using opposite Cisco Systems and ZTE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, ZTE 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 ZTE will offset losses from the drop in ZTE's long position.

The idea behind Cisco Systems and ZTE Corporation 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.