Correlation Between Cisco Systems and China Merchants
Can any of the company-specific risk be diversified away by investing in both Cisco Systems and China Merchants 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 China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cisco Systems and China Merchants Bank, you can compare the effects of market volatilities on Cisco Systems and China Merchants 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 China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and China Merchants.
Diversification Opportunities for Cisco Systems and China Merchants
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cisco and China is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and China Merchants Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Bank 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 China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Bank has no effect on the direction of Cisco Systems i.e., Cisco Systems and China Merchants go up and down completely randomly.
Pair Corralation between Cisco Systems and China Merchants
Given the investment horizon of 90 days Cisco Systems is expected to generate 0.48 times more return on investment than China Merchants. However, Cisco Systems is 2.1 times less risky than China Merchants. It trades about 0.04 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.01 per unit of risk. If you would invest 4,635 in Cisco Systems on August 24, 2024 and sell it today you would earn a total of 1,121 from holding Cisco Systems or generate 24.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cisco Systems vs. China Merchants Bank
Performance |
| Timeline |
| Cisco Systems |
| China Merchants Bank |
Cisco Systems and China Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cisco Systems and China Merchants
The main advantage of trading using opposite Cisco Systems and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, China Merchants 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 China Merchants will offset losses from the drop in China Merchants' long position.| Cisco Systems vs. NETGEAR | Cisco Systems vs. Small Cap Core | Cisco Systems vs. Morningstar Unconstrained Allocation | Cisco Systems vs. Mutual Of America |
| China Merchants vs. China Everbright Bank | China Merchants vs. China Merchants Bank | China Merchants vs. Postal Savings Bank | China Merchants vs. China Citic Bank |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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