Correlation Between Fortinet and Cisco Systems

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

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

Diversification Opportunities for Fortinet and Cisco Systems

0.83

Correlation Coefficient

Fortinet  Cisco Systems

Very poor diversification

The 3 months correlation between Fortinet and Cisco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Fortinet and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Fortinet 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 Fortinet are associated (or correlated) with Cisco Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisco Systems has no effect on the direction of Fortinet i.e., Fortinet and Cisco Systems go up and down completely randomly.

Pair Corralation between Fortinet and Cisco Systems

Given the investment horizon of 90 days Fortinet is expected to generate 2.02 times more return on investment than Cisco Systems. However, Fortinet is 2.02 times more volatile than Cisco Systems. It trades about 0.17 of its potential returns per unit of risk. Cisco Systems is currently generating about 0.29 per unit of risk. If you would invest  7,687  in Fortinet on September 4, 2024 and sell it today you would earn a total of  1,845  from holding Fortinet or generate 24.0% return on investment over 90 days.

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

Fortinet  vs.  Cisco Systems

Fortinet

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fortinet are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Fortinet unveiled solid returns over the last few months and may actually be approaching a breakup point.

Cisco Systems

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortinet and Cisco Systems

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

The idea behind Fortinet and Cisco Systems 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.