Correlation Between Cisco Systems and Alphabet

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

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

Diversification Opportunities for Cisco Systems and Alphabet

0.64

Correlation Coefficient

Cisco Systems  Alphabet

Poor diversification

The 3 months correlation between Cisco and Alphabet is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Alphabet Inc Class C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class C 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class C has no effect on the direction of Cisco Systems i.e., Cisco Systems and Alphabet go up and down completely randomly.

Pair Corralation between Cisco Systems and Alphabet

Given the investment horizon of 90 days Cisco Systems is expected to generate 2.3 times less return on investment than Alphabet. But when comparing it to its historical volatility, Cisco Systems is 1.52 times less risky than Alphabet. It trades about 0.06 of its potential returns per unit of risk. Alphabet Inc Class C is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9,892  in Alphabet Inc Class C on October 11, 2024 and sell it today you would earn a total of  9,647  from holding Alphabet Inc Class C or generate 97.52% return on investment over 90 days.

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

Cisco Systems  vs.  Alphabet Inc Class C

Cisco Systems

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Alphabet Class C

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Cisco Systems and Alphabet

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

The idea behind Cisco Systems and Alphabet Inc Class C 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.