Correlation Between Cisco Systems and SPDR Portfolio

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

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

Diversification Opportunities for Cisco Systems and SPDR Portfolio

0.68

Correlation Coefficient

Cisco Systems  SPDR Portfolio

Poor diversification

The 3 months correlation between Cisco and SPDR is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and SPDR Portfolio High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio High 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 SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio High has no effect on the direction of Cisco Systems i.e., Cisco Systems and SPDR Portfolio go up and down completely randomly.

Pair Corralation between Cisco Systems and SPDR Portfolio

Given the investment horizon of 90 days Cisco Systems is expected to generate 1.03 times less return on investment than SPDR Portfolio. In addition to that, Cisco Systems is 4.04 times more volatile than SPDR Portfolio High. It trades about 0.04 of its total potential returns per unit of risk. SPDR Portfolio High is currently generating about 0.17 per unit of volatility. If you would invest  2,014  in SPDR Portfolio High on October 5, 2024 and sell it today you would earn a total of  343.00  from holding SPDR Portfolio High or generate 17.03% 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.  SPDR Portfolio High

Cisco Systems

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 14 (%) 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.

SPDR Portfolio High

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio High are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cisco Systems and SPDR Portfolio

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

The idea behind Cisco Systems and SPDR Portfolio High 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.