Correlation Between Cisco Systems and IShares Morningstar

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

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

Diversification Opportunities for Cisco Systems and IShares Morningstar

0.73

Correlation Coefficient

Cisco Systems  IShares Morningstar

Poor diversification

The 3 months correlation between Cisco and IShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and iShares Morningstar Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar Value 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 IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar Value has no effect on the direction of Cisco Systems i.e., Cisco Systems and IShares Morningstar go up and down completely randomly.

Pair Corralation between Cisco Systems and IShares Morningstar

Given the investment horizon of 90 days Cisco Systems is expected to generate 1.52 times more return on investment than IShares Morningstar. However, Cisco Systems is 1.52 times more volatile than iShares Morningstar Value. It trades about 0.05 of its potential returns per unit of risk. iShares Morningstar Value is currently generating about 0.0 per unit of risk. If you would invest  5,879  in Cisco Systems on December 28, 2024 and sell it today you would earn a total of  207.00  from holding Cisco Systems or generate 3.52% 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.  iShares Morningstar Value

Cisco Systems

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Cisco Systems is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

iShares Morningstar Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Morningstar Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, IShares Morningstar is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Cisco Systems and IShares Morningstar

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

The idea behind Cisco Systems and iShares Morningstar Value 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.