Correlation Between Cisco Systems and Kone Oyj

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

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

Diversification Opportunities for Cisco Systems and Kone Oyj

-0.37

Correlation Coefficient

Cisco Systems  Kone Oyj

Very good diversification

The 3 months correlation between Cisco and Kone is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Kone Oyj ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kone Oyj ADR and Cisco Systems 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 Cisco Systems are associated (or correlated) with Kone Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kone Oyj ADR has no effect on the direction of Cisco Systems i.e., Cisco Systems and Kone Oyj go up and down completely randomly.

Pair Corralation between Cisco Systems and Kone Oyj

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.67 times more return on investment than Kone Oyj. However, Cisco Systems is 1.48 times less risky than Kone Oyj. It trades about 0.29 of its potential returns per unit of risk. Kone Oyj ADR is currently generating about -0.04 per unit of risk. If you would invest  4,932  in Cisco Systems on September 4, 2024 and sell it today you would earn a total of  1,011  from holding Cisco Systems or generate 20.5% return on investment over 90 days.

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

Cisco Systems  vs.  Kone Oyj ADR

Cisco Systems

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Kone Oyj ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kone Oyj ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, Kone Oyj is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cisco Systems and Kone Oyj

The main advantage of trading using opposite Cisco Systems and Kone Oyj positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Kone Oyj 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 Kone Oyj will offset losses from the drop in Kone Oyj's long position.

The idea behind Cisco Systems and Kone Oyj ADR 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.