Correlation Between Cisco Systems and Wal Mart

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

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

Diversification Opportunities for Cisco Systems and Wal Mart

-0.79

Correlation Coefficient

Cisco Systems  Wal Mart

Pay attention - limited upside

The 3 months correlation between Cisco and Wal is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Wal Mart de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wal Mart de 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 Wal Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wal Mart de has no effect on the direction of Cisco Systems i.e., Cisco Systems and Wal Mart go up and down completely randomly.

Pair Corralation between Cisco Systems and Wal Mart

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.65 times more return on investment than Wal Mart. However, Cisco Systems is 1.54 times less risky than Wal Mart. It trades about 0.17 of its potential returns per unit of risk. Wal Mart de is currently generating about -0.09 per unit of risk. If you would invest  4,590  in Cisco Systems on August 30, 2024 and sell it today you would earn a total of  1,339  from holding Cisco Systems or generate 29.17% return on investment over 90 days.

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

Cisco Systems  vs.  Wal Mart de

Cisco Systems

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 20 (%) 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.

Wal Mart de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wal Mart de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Cisco Systems and Wal Mart

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

The idea behind Cisco Systems and Wal Mart de 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.