Correlation Between Cisco Systems and Telenor ASA

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

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

Diversification Opportunities for Cisco Systems and Telenor ASA

-0.71

Correlation Coefficient

Cisco Systems  Telenor ASA

Pay attention - limited upside

The 3 months correlation between Cisco and Telenor is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Telenor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telenor ASA 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 Telenor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telenor ASA ADR has no effect on the direction of Cisco Systems i.e., Cisco Systems and Telenor ASA go up and down completely randomly.

Pair Corralation between Cisco Systems and Telenor ASA

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.77 times more return on investment than Telenor ASA. However, Cisco Systems is 1.3 times less risky than Telenor ASA. It trades about 0.28 of its potential returns per unit of risk. Telenor ASA ADR is currently generating about -0.08 per unit of risk. If you would invest  4,923  in Cisco Systems on September 12, 2024 and sell it today you would earn a total of  949.00  from holding Cisco Systems or generate 19.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Cisco Systems  vs.  Telenor ASA ADR

Cisco Systems

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 21 (%) 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.

Telenor ASA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telenor ASA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Cisco Systems and Telenor ASA

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

The idea behind Cisco Systems and Telenor ASA 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.