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]
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| 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 ***
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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.
