Correlation Between Cisco Systems and Deswell Industries

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

-0.75

Correlation Coefficient

Cisco Systems  Deswell Industries

Pay attention - limited upside

The 3 months correlation between Cisco and Deswell is -0.75. 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 under-perform the Deswell Industries. But the stock apears to be less risky and, when comparing its historical volatility, Cisco Systems is 1.88 times less risky than Deswell Industries. The stock trades about -0.23 of its potential returns per unit of risk. The Deswell Industries is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  238.00  in Deswell Industries on March 14, 2024 and sell it today you would lose (6.00) from holding Deswell Industries or give up 2.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily 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 latest unfluctuating performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Deswell Industries

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Deswell Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Deswell Industries is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.