Correlation Between Cisco Systems and Infinera

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

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

Diversification Opportunities for Cisco Systems and Infinera

0.66

Correlation Coefficient

Cisco Systems  Infinera

Poor diversification

The 3 months correlation between Cisco and Infinera is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Infinera in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infinera 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 Infinera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infinera has no effect on the direction of Cisco Systems i.e., Cisco Systems and Infinera go up and down completely randomly.

Pair Corralation between Cisco Systems and Infinera

Given the investment horizon of 90 days Cisco Systems is expected to generate 3.44 times more return on investment than Infinera. However, Cisco Systems is 3.44 times more volatile than Infinera. It trades about 0.13 of its potential returns per unit of risk. Infinera is currently generating about 0.03 per unit of risk. If you would invest  5,881  in Cisco Systems on November 29, 2024 and sell it today you would earn a total of  500.00  from holding Cisco Systems or generate 8.5% 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.  Infinera

Cisco Systems

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 10 (%) 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 March 2025.

Infinera

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Infinera are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Infinera is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Cisco Systems and Infinera

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

The idea behind Cisco Systems and Infinera 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.