Correlation Between ATT and Cisco Systems

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

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

Diversification Opportunities for ATT and Cisco Systems

0.92

Correlation Coefficient

ATT  Cisco Systems

Almost no diversification

The 3 months correlation between ATT and Cisco is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and ATT 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 ATT 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 ATT i.e., ATT and Cisco Systems go up and down completely randomly.

Pair Corralation between ATT and Cisco Systems

Given the investment horizon of 90 days ATT Inc is expected to under-perform the Cisco Systems. In addition to that, ATT is 1.48 times more volatile than Cisco Systems. It trades about -0.12 of its total potential returns per unit of risk. Cisco Systems is currently generating about -0.12 per unit of volatility. 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

ATT Inc  vs.  Cisco Systems

ATT Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, ATT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 ATT and Cisco Systems

The main advantage of trading using opposite ATT and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT 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 ATT 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.

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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 Commodity Directory module to find actively traded commodities issued by global exchanges.