Correlation Between Cisco Systems and Nokia

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

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

Diversification Opportunities for Cisco Systems and Nokia

0.88

Correlation Coefficient

Cisco Systems  Nokia

Very poor diversification

The 3 months correlation between Cisco and Nokia is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Nokia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokia 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 Nokia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokia has no effect on the direction of Cisco Systems i.e., Cisco Systems and Nokia go up and down completely randomly.

Pair Corralation between Cisco Systems and Nokia

Assuming the 90 days trading horizon Cisco Systems is expected to generate 1.9 times less return on investment than Nokia. But when comparing it to its historical volatility, Cisco Systems is 1.78 times less risky than Nokia. It trades about 0.15 of its potential returns per unit of risk. Nokia is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  393.00  in Nokia on November 29, 2024 and sell it today you would earn a total of  75.00  from holding Nokia or generate 19.08% return on investment over 90 days.

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

Cisco Systems  vs.  Nokia

Cisco Systems

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Nokia

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nokia are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nokia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and Nokia

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

The idea behind Cisco Systems and Nokia 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.