Correlation Between ZTE and Cisco Systems

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

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

Diversification Opportunities for ZTE and Cisco Systems

0.62

Correlation Coefficient

ZTE  Cisco Systems

Poor diversification

The 3 months correlation between ZTE and Cisco is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding ZTE Corp. and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and ZTE 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 ZTE Corporation 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 ZTE i.e., ZTE and Cisco Systems go up and down completely randomly.

Pair Corralation between ZTE and Cisco Systems

Assuming the 90 days horizon ZTE Corporation is expected to generate 3.58 times more return on investment than Cisco Systems. However, ZTE is 3.58 times more volatile than Cisco Systems. It trades about 0.01 of its potential returns per unit of risk. Cisco Systems is currently generating about 0.0 per unit of risk. If you would invest  304.00  in ZTE Corporation on December 29, 2024 and sell it today you would lose (16.00) from holding ZTE Corporation or give up 5.26% of portfolio value over 90 days.

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

ZTE Corp.  vs.  Cisco Systems

ZTE Corporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days ZTE Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ZTE is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Cisco Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cisco Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cisco Systems is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ZTE and Cisco Systems

The main advantage of trading using opposite ZTE and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ZTE 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 ZTE Corporation 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.