Correlation Between Nasdaq and Cisco Systems

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

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

Diversification Opportunities for Nasdaq and Cisco Systems

0.88

Correlation Coefficient

Nasdaq  Cisco Systems

Very poor diversification

The 3 months correlation between Nasdaq and Cisco is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and Cisco Systems go up and down completely randomly.

Pair Corralation between Nasdaq and Cisco Systems

Given the investment horizon of 90 days Nasdaq Inc is expected to under-perform the Cisco Systems. But the stock apears to be less risky and, when comparing its historical volatility, Nasdaq Inc is 1.17 times less risky than Cisco Systems. The stock trades about -0.21 of its potential returns per unit of risk. The Cisco Systems is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  119,600  in Cisco Systems on September 24, 2024 and sell it today you would lose (3,600) from holding Cisco Systems or give up 3.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Nasdaq Inc  vs.  Cisco Systems

Nasdaq Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Nasdaq is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Cisco Systems

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Nasdaq and Cisco Systems

The main advantage of trading using opposite Nasdaq and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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 Nasdaq Inc 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .