Correlation Between Merck and Cisco Systems
Can any of the company-specific risk be diversified away by investing in both Merck and Cisco Systems 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 Merck and Cisco Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Cisco Systems, you can compare the effects of market volatilities on Merck and Cisco Systems 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 Merck with a short position of Cisco Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Cisco Systems.
Diversification Opportunities for Merck and Cisco Systems
-0.9 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Cisco is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and Merck 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 Merck Company are associated (or correlated) with Cisco Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisco Systems has no effect on the direction of Merck i.e., Merck and Cisco Systems go up and down completely randomly.
Pair Corralation between Merck and Cisco Systems
Considering the 90-day investment horizon Merck Company is expected to under-perform the Cisco Systems. In addition to that, Merck is 1.25 times more volatile than Cisco Systems. It trades about 0.0 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.3 per unit of volatility. If you would invest 5,550 in Cisco Systems on September 2, 2024 and sell it today you would earn a total of 371.00 from holding Cisco Systems or generate 6.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Cisco Systems
Performance |
| Timeline |
| Merck Company |
| Cisco Systems |
Merck and Cisco Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Cisco Systems
The main advantage of trading using opposite Merck and Cisco Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Cisco Systems 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 Cisco Systems will offset losses from the drop in Cisco Systems' long position.The idea behind Merck Company and Cisco Systems 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.| Cisco Systems vs. Juniper Networks | Cisco Systems vs. Nokia Corp ADR | Cisco Systems vs. Motorola Solutions | Cisco Systems vs. Ciena Corp |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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