Correlation Between Cisco Systems and Merck
Can any of the company-specific risk be diversified away by investing in both Cisco Systems and Merck 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 Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cisco Systems and Merck Company, you can compare the effects of market volatilities on Cisco Systems and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and Merck.
Diversification Opportunities for Cisco Systems and Merck
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cisco and Merck is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Cisco Systems i.e., Cisco Systems and Merck go up and down completely randomly.
Pair Corralation between Cisco Systems and Merck
Given the investment horizon of 90 days Cisco Systems is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, Cisco Systems is 1.08 times less risky than Merck. The stock trades about -0.07 of its potential returns per unit of risk. The Merck Company is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 12,531 in Merck Company on January 25, 2024 and sell it today you would earn a total of 157.00 from holding Merck Company or generate 1.25% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Cisco Systems vs. Merck Company
Performance |
Timeline |
Cisco Systems |
Merck Company |
Cisco Systems and Merck Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Cisco Systems and Merck
The main advantage of trading using opposite Cisco Systems and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.Cisco Systems vs. Desktop Metal | Cisco Systems vs. Fabrinet | Cisco Systems vs. Kimball Electronics | Cisco Systems vs. Knowles Cor |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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