Correlation Between Cisco Systems and Nokia
Can any of the company-specific risk be diversified away by investing in both Cisco Systems and Nokia 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 Nokia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cisco Systems and Nokia, you can compare the effects of market volatilities on Cisco Systems and Nokia 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 Nokia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and Nokia.
Diversification Opportunities for Cisco Systems and Nokia
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cisco and Nokia is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Nokia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokia 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 Nokia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokia has no effect on the direction of Cisco Systems i.e., Cisco Systems and Nokia go up and down completely randomly.
Pair Corralation between Cisco Systems and Nokia
Assuming the 90 days horizon Cisco Systems is expected to generate 1.03 times more return on investment than Nokia. However, Cisco Systems is 1.03 times more volatile than Nokia. It trades about 0.34 of its potential returns per unit of risk. Nokia is currently generating about -0.24 per unit of risk. If you would invest 5,000 in Cisco Systems on September 1, 2024 and sell it today you would earn a total of 585.00 from holding Cisco Systems or generate 11.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cisco Systems vs. Nokia
Performance |
| Timeline |
| Cisco Systems |
| Nokia |
Cisco Systems and Nokia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cisco Systems and Nokia
The main advantage of trading using opposite Cisco Systems and Nokia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Nokia 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 Nokia will offset losses from the drop in Nokia's long position.| Cisco Systems vs. Playtech plc | Cisco Systems vs. Electronic Arts | Cisco Systems vs. ANTA SPORTS PRODUCT | Cisco Systems vs. USWE SPORTS AB |
| Nokia vs. STRAYER EDUCATION | Nokia vs. CAREER EDUCATION | Nokia vs. MYFAIR GOLD P | Nokia vs. Strategic Education |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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