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, 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

-0.7

Correlation Coefficient

Cisco Systems  ALPHABET

Excellent diversification

The 3 months correlation between Cisco and ALPHABET is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and ALPHABET INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPHABET INC 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 INC 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 0.92 times more return on investment than ALPHABET. However, Cisco Systems is 1.09 times less risky than ALPHABET. It trades about 0.26 of its potential returns per unit of risk. ALPHABET INC is currently generating about 0.05 per unit of risk. If you would invest  5,016  in Cisco Systems on August 30, 2024 and sell it today you would earn a total of  913.00  from holding Cisco Systems or generate 18.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Cisco Systems  vs.  ALPHABET INC

Cisco Systems

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

ALPHABET INC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ALPHABET INC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ALPHABET is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 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 Valuation module to check real value of public entities based on technical and fundamental data.