Correlation Between Vanguard Emerging and Cisco Systems

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

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

Diversification Opportunities for Vanguard Emerging and Cisco Systems

-0.35

Correlation Coefficient

Vanguard Emerging  Cisco Systems

Very good diversification

The 3 months correlation between Vanguard and Cisco is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Emerging Markets and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Vanguard Emerging 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 Vanguard Emerging Markets 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 Vanguard Emerging i.e., Vanguard Emerging and Cisco Systems go up and down completely randomly.

Pair Corralation between Vanguard Emerging and Cisco Systems

Assuming the 90 days horizon Vanguard Emerging is expected to generate 3.08 times less return on investment than Cisco Systems. But when comparing it to its historical volatility, Vanguard Emerging Markets is 3.39 times less risky than Cisco Systems. It trades about 0.16 of its potential returns per unit of risk. Cisco Systems is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  5,731  in Cisco Systems on September 19, 2024 and sell it today you would earn a total of  121.00  from holding Cisco Systems or generate 2.11% return on investment over 90 days.

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

Vanguard Emerging Markets  vs.  Cisco Systems

Vanguard Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Vanguard Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cisco Systems

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Emerging and Cisco Systems

The main advantage of trading using opposite Vanguard Emerging and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Emerging 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 Vanguard Emerging Markets 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.