Correlation Between CDW Corp and Cisco Systems

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

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

Diversification Opportunities for CDW Corp and Cisco Systems

-0.36

Correlation Coefficient

CDW Corp  Cisco Systems

Very good diversification

The 3 months correlation between CDW and Cisco is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding CDW Corp and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and CDW Corp 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 CDW Corp 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 CDW Corp i.e., CDW Corp and Cisco Systems go up and down completely randomly.

Pair Corralation between CDW Corp and Cisco Systems

Considering the 90-day investment horizon CDW Corp is expected to under-perform the Cisco Systems. But the stock apears to be less risky and, when comparing its historical volatility, CDW Corp is 1.09 times less risky than Cisco Systems. The stock trades about -0.19 of its potential returns per unit of risk. The Cisco Systems is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  4,963  in Cisco Systems on January 29, 2024 and sell it today you would lose (177.00) from holding Cisco Systems or give up 3.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CDW Corp  vs.  Cisco Systems

CDW Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CDW Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, CDW Corp is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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.

Pair Trading with CDW Corp and Cisco Systems

The main advantage of trading using opposite CDW Corp and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CDW Corp 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 CDW Corp 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.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.