Correlation Between Lantronix and Cisco Systems

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

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

Diversification Opportunities for Lantronix and Cisco Systems

-0.44

Correlation Coefficient

Lantronix  Cisco Systems

Very good diversification

The 3 months correlation between Lantronix and Cisco is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Lantronix and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Lantronix 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 Lantronix 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 Lantronix i.e., Lantronix and Cisco Systems go up and down completely randomly.

Pair Corralation between Lantronix and Cisco Systems

Given the investment horizon of 90 days Lantronix is expected to generate 6.04 times more return on investment than Cisco Systems. However, Lantronix is 6.04 times more volatile than Cisco Systems. It trades about 0.08 of its potential returns per unit of risk. Cisco Systems is currently generating about 0.14 per unit of risk. If you would invest  376.00  in Lantronix on October 6, 2024 and sell it today you would earn a total of  47.00  from holding Lantronix or generate 12.5% return on investment over 90 days.

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

Lantronix  vs.  Cisco Systems

Lantronix

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lantronix are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Lantronix showed solid returns over the last few months and may actually be approaching a breakup point.

Cisco Systems

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lantronix and Cisco Systems

The main advantage of trading using opposite Lantronix and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lantronix 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 Lantronix 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.