Correlation Between Cisco Systems and Wendys

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

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

Diversification Opportunities for Cisco Systems and Wendys

-0.43

Correlation Coefficient

Cisco Systems  Wendys

Very good diversification

The 3 months correlation between Cisco and Wendys is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys 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 Wendys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Wendys has no effect on the direction of Cisco Systems i.e., Cisco Systems and Wendys go up and down completely randomly.

Pair Corralation between Cisco Systems and Wendys

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.68 times more return on investment than Wendys. However, Cisco Systems is 1.48 times less risky than Wendys. It trades about 0.07 of its potential returns per unit of risk. The Wendys Co is currently generating about -0.07 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  261.00  from holding Cisco Systems or generate 4.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cisco Systems  vs.  The Wendys Co

Cisco Systems

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 5 (%) 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.

The Wendys

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Wendys Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Cisco Systems and Wendys

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

The idea behind Cisco Systems and The Wendys Co 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.