Correlation Between Cisco Systems and Deswell Industries

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

Diversification Opportunities for Cisco Systems and Deswell Industries

  Correlation Coefficient

Poor diversification

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

Pair Corralation between Cisco Systems and Deswell Industries

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.63 times more return on investment than Deswell Industries. However, Cisco Systems is 1.59 times less risky than Deswell Industries. It trades about 0.01 of its potential returns per unit of risk. Deswell Industries is currently generating about -0.01 per unit of risk. If you would invest  4,676  in Cisco Systems on January 22, 2024 and sell it today you would earn a total of  156.00  from holding Cisco Systems or generate 3.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

Cisco Systems  vs.  Deswell Industries

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 recent stock price disarray, may contribute to short-term losses for the investors.
Deswell Industries 

Risk-Adjusted Performance

0 of 100

Very Weak
Over the last 90 days Deswell Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Cisco Systems and Deswell Industries Volatility Contrast

   Predicted Return Density   

Pair Trading with Cisco Systems and Deswell Industries

The main advantage of trading using opposite Cisco Systems and Deswell Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Deswell Industries 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 Deswell Industries will offset losses from the drop in Deswell Industries' long position.
The idea behind Cisco Systems and Deswell Industries 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.
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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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