Correlation Between Cisco Systems and Microsoft

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Can any of the company-specific risk be diversified away by investing in both Cisco Systems and Microsoft 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 Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cisco Systems and Microsoft, you can compare the effects of market volatilities on Cisco Systems and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and Microsoft.

Diversification Opportunities for Cisco Systems and Microsoft

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Cisco and Microsoft is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Cisco Systems i.e., Cisco Systems and Microsoft go up and down completely randomly.

Pair Corralation between Cisco Systems and Microsoft

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.63 times more return on investment than Microsoft. However, Cisco Systems is 1.58 times less risky than Microsoft. It trades about 0.27 of its potential returns per unit of risk. Microsoft is currently generating about -0.04 per unit of risk. If you would invest  5,528  in Cisco Systems on August 28, 2024 and sell it today you would earn a total of  346.00  from holding Cisco Systems or generate 6.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Cisco Systems  vs.  Microsoft

 Performance 
       Timeline  
Cisco Systems 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
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.
Microsoft 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Cisco Systems and Microsoft Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and Microsoft

The main advantage of trading using opposite Cisco Systems and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.
The idea behind Cisco Systems and Microsoft 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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