Correlation Between Cisco Systems and SPDR SP

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

By analyzing existing cross correlation between Cisco Systems and SPDR SP 1500, you can compare the effects of market volatilities on Cisco Systems and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and SPDR SP.

Diversification Opportunities for Cisco Systems and SPDR SP

0.85

Correlation Coefficient

Cisco Systems  SPDR SP

Very poor diversification

The 3 months correlation between Cisco and SPDR is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and SPDR SP 1500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 1500 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 1500 has no effect on the direction of Cisco Systems i.e., Cisco Systems and SPDR SP go up and down completely randomly.

Pair Corralation between Cisco Systems and SPDR SP

Given the investment horizon of 90 days Cisco Systems is expected to generate 1.21 times less return on investment than SPDR SP. In addition to that, Cisco Systems is 1.92 times more volatile than SPDR SP 1500. It trades about 0.09 of its total potential returns per unit of risk. SPDR SP 1500 is currently generating about 0.2 per unit of volatility. If you would invest  25,446  in SPDR SP 1500 on May 25, 2025 and sell it today you would earn a total of  2,053  from holding SPDR SP 1500 or generate 8.07% return on investment over 90 days.

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

Cisco Systems  vs.  SPDR SP 1500

Cisco Systems

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in September 2025.

SPDR SP 1500

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 1500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Cisco Systems and SPDR SP

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

The idea behind Cisco Systems and SPDR SP 1500 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.