Correlation Between Charter Communications and Cisco Systems

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

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

Diversification Opportunities for Charter Communications and Cisco Systems

0.71

Correlation Coefficient

Charter Communications  Cisco Systems

Poor diversification

The 3 months correlation between Charter and Cisco is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Charter Communications 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 Charter Communications 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 Charter Communications i.e., Charter Communications and Cisco Systems go up and down completely randomly.

Pair Corralation between Charter Communications and Cisco Systems

Assuming the 90 days trading horizon Charter Communications is expected to under-perform the Cisco Systems. In addition to that, Charter Communications is 1.86 times more volatile than Cisco Systems. It trades about -0.37 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.31 per unit of volatility. If you would invest  5,493  in Cisco Systems on October 15, 2024 and sell it today you would earn a total of  227.00  from holding Cisco Systems or generate 4.13% return on investment over 90 days.

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

Charter Communications  vs.  Cisco Systems

Charter Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Charter Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cisco Systems

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cisco Systems reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Charter Communications and Cisco Systems

The main advantage of trading using opposite Charter Communications and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications 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 Charter Communications 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.