Correlation Between Cisco Systems and ADTRAN

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

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

Diversification Opportunities for Cisco Systems and ADTRAN

0.57

Correlation Coefficient

Cisco Systems  ADTRAN

Very weak diversification

The 3 months correlation between Cisco and ADTRAN is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and ADTRAN Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADTRAN Inc 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 ADTRAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADTRAN Inc has no effect on the direction of Cisco Systems i.e., Cisco Systems and ADTRAN go up and down completely randomly.

Pair Corralation between Cisco Systems and ADTRAN

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.52 times more return on investment than ADTRAN. However, Cisco Systems is 1.91 times less risky than ADTRAN. It trades about -0.08 of its potential returns per unit of risk. ADTRAN Inc is currently generating about -0.27 per unit of risk. If you would invest  4,915  in Cisco Systems on January 20, 2024 and sell it today you would lose (104.00) from holding Cisco Systems or give up 2.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Cisco Systems  vs.  ADTRAN Inc

Cisco Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cisco Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Cisco Systems is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

ADTRAN Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADTRAN Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Cisco Systems and ADTRAN

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

The idea behind Cisco Systems and ADTRAN Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.