Correlation Between Cisco Systems and BK Technologies

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

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

Diversification Opportunities for Cisco Systems and BK Technologies

0.88

Correlation Coefficient

Cisco Systems  BK Technologies

Very poor diversification

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

Pair Corralation between Cisco Systems and BK Technologies

Given the investment horizon of 90 days Cisco Systems is expected to generate 2.74 times less return on investment than BK Technologies. But when comparing it to its historical volatility, Cisco Systems is 5.17 times less risky than BK Technologies. It trades about 0.27 of its potential returns per unit of risk. BK Technologies is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,219  in BK Technologies on September 3, 2024 and sell it today you would earn a total of  1,099  from holding BK Technologies or generate 49.53% 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.  BK Technologies

Cisco Systems

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

BK Technologies

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BK Technologies are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, BK Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and BK Technologies

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

The idea behind Cisco Systems and BK Technologies 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.