Correlation Between Cisco Systems and CDW Corp

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

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

Diversification Opportunities for Cisco Systems and CDW Corp

0.36

Correlation Coefficient

Cisco Systems  CDW Corp

Weak diversification

The 3 months correlation between Cisco and CDW is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and CDW Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDW Corp 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 CDW Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDW Corp has no effect on the direction of Cisco Systems i.e., Cisco Systems and CDW Corp go up and down completely randomly.

Pair Corralation between Cisco Systems and CDW Corp

Given the investment horizon of 90 days Cisco Systems is expected to under-perform the CDW Corp. But the stock apears to be less risky and, when comparing its historical volatility, Cisco Systems is 1.32 times less risky than CDW Corp. The stock trades about -0.01 of its potential returns per unit of risk. The CDW Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  18,630  in CDW Corp on February 5, 2024 and sell it today you would earn a total of  3,326  from holding CDW Corp or generate 17.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cisco Systems  vs.  CDW Corp

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 latest stock price disarray, may contribute to short-term losses for the investors.

CDW Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CDW Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, CDW Corp is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Cisco Systems and CDW Corp

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

The idea behind Cisco Systems and CDW Corp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.