Correlation Between Verizon Communications and Cisco Systems

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

Diversification Opportunities for Verizon Communications and Cisco Systems

-0.43
  Correlation Coefficient

Very good diversification

The 3 months correlation between Verizon and Cisco is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Verizon Communications 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 Verizon Communications are associated (or correlated) with Cisco Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisco Systems has no effect on the direction of Verizon Communications i.e., Verizon Communications and Cisco Systems go up and down completely randomly.

Pair Corralation between Verizon Communications and Cisco Systems

Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the Cisco Systems. In addition to that, Verizon Communications is 1.46 times more volatile than Cisco Systems. It trades about -0.29 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.29 per unit of volatility. If you would invest  4,307  in Cisco Systems on May 16, 2022 and sell it today you would earn a total of  354.00  from holding Cisco Systems or generate 8.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Verizon Communications  vs.  Cisco Systems

 Performance (%) 
       Timeline  
Verizon Communications 
Verizon Performance
0 of 100
Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest sluggish performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Verizon Price Channel

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 new stock price mess, may contribute to short-term losses for the institutional investors.

Cisco Price Channel

Verizon Communications and Cisco Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Verizon Communications and Cisco Systems

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

Cisco Systems

Pair trading matchups for Cisco Systems

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 Focused Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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