Correlation Between Cisco Systems and Viavi Solutions

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

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

Diversification Opportunities for Cisco Systems and Viavi Solutions

0.37

Correlation Coefficient

Cisco Systems  Viavi Solutions

Weak diversification

The 3 months correlation between Cisco and Viavi is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Viavi Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Viavi Solutions 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 Viavi Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Viavi Solutions has no effect on the direction of Cisco Systems i.e., Cisco Systems and Viavi Solutions go up and down completely randomly.

Pair Corralation between Cisco Systems and Viavi Solutions

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.64 times more return on investment than Viavi Solutions. However, Cisco Systems is 1.56 times less risky than Viavi Solutions. It trades about 0.01 of its potential returns per unit of risk. Viavi Solutions is currently generating about -0.04 per unit of risk. If you would invest  4,837  in Cisco Systems on January 24, 2024 and sell it today you would lose (23.00) from holding Cisco Systems or give up 0.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Cisco Systems  vs.  Viavi Solutions

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.

Viavi Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Viavi Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in May 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Cisco Systems and Viavi Solutions

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

The idea behind Cisco Systems and Viavi Solutions 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.