Correlation Between Cisco Systems and Defiance

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

By analyzing existing cross correlation between Cisco Systems and Defiance SP 500, you can compare the effects of market volatilities on Cisco Systems and Defiance 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 Defiance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and Defiance.

Diversification Opportunities for Cisco Systems and Defiance

0.58

Correlation Coefficient

Cisco Systems  Defiance

Very weak diversification

The 3 months correlation between Cisco and Defiance is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Defiance SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defiance SP 500 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 Defiance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defiance SP 500 has no effect on the direction of Cisco Systems i.e., Cisco Systems and Defiance go up and down completely randomly.

Pair Corralation between Cisco Systems and Defiance

Given the investment horizon of 90 days Cisco Systems is expected to generate 2.32 times more return on investment than Defiance. However, Cisco Systems is 2.32 times more volatile than Defiance SP 500. It trades about 0.31 of its potential returns per unit of risk. Defiance SP 500 is currently generating about 0.49 per unit of risk. If you would invest  5,530  in Cisco Systems on April 23, 2025 and sell it today you would earn a total of  1,304  from holding Cisco Systems or generate 23.58% return on investment over 90 days.

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

Cisco Systems  vs.  Defiance SP 500

Cisco Systems

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cisco Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Defiance SP 500

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Defiance SP 500 are ranked lower than 38 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Defiance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cisco Systems and Defiance

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

The idea behind Cisco Systems and Defiance SP 500 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.