Showing posts with label CSCO. Show all posts
Showing posts with label CSCO. Show all posts

Tuesday, September 20, 2022

Linear Regression of Monthly Returns of Cisco Systems and the Vanguard S&P 500 Index ETF

Here is the graph of monthly returns of Cisco Systems (CSCO) plotted against Vanguard S&P 500 Index ETF (VOO):

Exhibit 1: Monthly Returns of Cisco Systems and Vanguard S&P 500 Index ETF [June 2019 -  August 2022]

Monthly Returns of the Vanguard S&P 500 Index ETF and Cisco Systems
Monthly Returns of the Vanguard S&P 500 Index ETF and Cisco Systems Inc.

(Source: RStudio, ggplot, Data Provided by IEX Cloud)

Results of the linear regression of monthly returns of Cisco Systems against Vanguard S&P 500 Index ETF:

VOOandCSCO <- read_excel("/CSCO_VOO_LM_September_2022.xlsx", sheet = "Sheet1")
lmCSCOVOO = lm(CSCO_Monthly_Return~VOO_Monthly_Return, data = VOOandCSCO)
summary(lmCSCOVOO)

Call:
lm(formula = CSCO_Monthly_Return ~ VOO_Monthly_Return, data = VOOandCSCO)

Residuals:
      Min        1Q    Median        3Q       Max 
-0.156924 -0.031998 -0.008248  0.038045  0.127839 

Coefficients:
                   Estimate Std. Error t value Pr(>|t|)    
(Intercept)        -0.01062    0.01049  -1.012    0.318    
VOO_Monthly_Return  0.91708    0.18946   4.841 2.31e-05 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 0.06426 on 37 degrees of freedom
Multiple R-squared:  0.3877, Adjusted R-squared:  0.3712 
F-statistic: 23.43 on 1 and 37 DF,  p-value: 2.306e-05

The slope of the regression corresponds to the beta of the stock. In this case, Cisco Systems has a beta of 0.91. 
The adjusted R-squared is 0.37. About 37% of Cisco's monthly return is explained by the returns of the S&P 500 index.  
Cisco Systems cannot protect a portfolio against market volatility since it has a beta value close to 1. Cisco's stock will almost entirely reflect the volatility in the market.      

 

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