Correlation Between Cisco Systems and Marathon Oil

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Can any of the company-specific risk be diversified away by investing in both Cisco Systems and Marathon Oil 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 Marathon Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cisco Systems and Marathon Oil, you can compare the effects of market volatilities on Cisco Systems and Marathon Oil 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 Marathon Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and Marathon Oil.

Diversification Opportunities for Cisco Systems and Marathon Oil

-0.33
  Correlation Coefficient

Very good diversification

The 3 months correlation between Cisco and Marathon is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Marathon Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marathon Oil 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 Marathon Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marathon Oil has no effect on the direction of Cisco Systems i.e., Cisco Systems and Marathon Oil go up and down completely randomly.

Pair Corralation between Cisco Systems and Marathon Oil

Given the investment horizon of 90 days Cisco Systems is expected to generate 4.38 times less return on investment than Marathon Oil. But when comparing it to its historical volatility, Cisco Systems is 1.25 times less risky than Marathon Oil. It trades about 0.18 of its potential returns per unit of risk. Marathon Oil is currently generating about 0.63 of returns per unit of risk over similar time horizon. If you would invest  2,429  in Marathon Oil on December 29, 2023 and sell it today you would earn a total of  342.00  from holding Marathon Oil or generate 14.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Cisco Systems  vs.  Marathon Oil

 Performance 
       Timeline  
Cisco Systems 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Cisco Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Cisco Systems is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Marathon Oil 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Marathon Oil are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Marathon Oil displayed solid returns over the last few months and may actually be approaching a breakup point.

Cisco Systems and Marathon Oil Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and Marathon Oil

The main advantage of trading using opposite Cisco Systems and Marathon Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Marathon Oil 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 Marathon Oil will offset losses from the drop in Marathon Oil's long position.
The idea behind Cisco Systems and Marathon Oil 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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