Correlation Between Cisco Systems and Fortinet

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

Diversification Opportunities for Cisco Systems and Fortinet

-0.31
  Correlation Coefficient

Very good diversification

The 3 months correlation between Cisco and Fortinet is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Fortinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortinet 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 Fortinet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortinet has no effect on the direction of Cisco Systems i.e., Cisco Systems and Fortinet go up and down completely randomly.

Pair Corralation between Cisco Systems and Fortinet

Given the investment horizon of 90 days Cisco Systems is expected to generate 4.35 times less return on investment than Fortinet. But when comparing it to its historical volatility, Cisco Systems is 1.86 times less risky than Fortinet. It trades about 0.03 of its potential returns per unit of risk. Fortinet is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,661  in Fortinet on May 14, 2022 and sell it today you would earn a total of  2,591  from holding Fortinet or generate 97.37% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Cisco Systems  vs.  Fortinet

 Performance (%) 
       Timeline  
Cisco Systems 
Cisco Performance
0 of 100
Over the last 90 days Cisco Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Cisco Systems is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Cisco Price Channel

Fortinet 
Fortinet Performance
0 of 100
Over the last 90 days Fortinet has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Fortinet is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Fortinet Price Channel

Cisco Systems and Fortinet Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and Fortinet

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

Cisco Systems

Pair trading matchups for Cisco Systems

The idea behind Cisco Systems and Fortinet 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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