Correlation Between Cisco Systems and Small Capitalization

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

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

Diversification Opportunities for Cisco Systems and Small Capitalization

0.92

Correlation Coefficient

Cisco Systems  Small Capitalization

Almost no diversification

The 3 months correlation between Cisco and Small is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Small Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Capitalization 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 Small Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Capitalization has no effect on the direction of Cisco Systems i.e., Cisco Systems and Small Capitalization go up and down completely randomly.

Pair Corralation between Cisco Systems and Small Capitalization

Given the investment horizon of 90 days Cisco Systems is expected to generate 0.73 times more return on investment than Small Capitalization. However, Cisco Systems is 1.37 times less risky than Small Capitalization. It trades about 0.34 of its potential returns per unit of risk. Small Capitalization Portfolio is currently generating about 0.19 per unit of risk. If you would invest  5,405  in Cisco Systems on April 20, 2025 and sell it today you would earn a total of  1,425  from holding Cisco Systems or generate 26.36% return on investment over 90 days.

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

Cisco Systems  vs.  Small Capitalization Portfolio

Cisco Systems

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Small Capitalization

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Capitalization Portfolio are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Capitalization showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and Small Capitalization

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

The idea behind Cisco Systems and Small Capitalization Portfolio 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.