Correlation Between Cisco Systems and Fairholme Fund

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

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

Diversification Opportunities for Cisco Systems and Fairholme Fund

0.86

Correlation Coefficient

Cisco Systems  Fairholme Fund

Very poor diversification

The 3 months correlation between Cisco and Fairholme is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and The Fairholme Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairholme Fund 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 Fairholme Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairholme Fund has no effect on the direction of Cisco Systems i.e., Cisco Systems and Fairholme Fund go up and down completely randomly.

Pair Corralation between Cisco Systems and Fairholme Fund

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.85 times more return on investment than Fairholme Fund. However, Cisco Systems is 1.18 times less risky than Fairholme Fund. It trades about 0.05 of its potential returns per unit of risk. The Fairholme Fund is currently generating about 0.02 per unit of risk. If you would invest  4,485  in Cisco Systems on February 5, 2025 and sell it today you would earn a total of  1,447  from holding Cisco Systems or generate 32.26% return on investment over 90 days.

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

Cisco Systems  vs.  The Fairholme Fund

Cisco Systems

Risk-Adjusted Performance

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.

Fairholme Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Fairholme Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Fairholme Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cisco Systems and Fairholme Fund

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

The idea behind Cisco Systems and The Fairholme Fund 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.