Correlation Between Cisco Systems and Madrigal Pharmaceuticals

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

Diversification Opportunities for Cisco Systems and Madrigal Pharmaceuticals

0.22
  Correlation Coefficient

Modest diversification

The 3 months correlation between Cisco and Madrigal is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Madrigal Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madrigal Pharmaceuticals 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 Madrigal Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madrigal Pharmaceuticals has no effect on the direction of Cisco Systems i.e., Cisco Systems and Madrigal Pharmaceuticals go up and down completely randomly.

Pair Corralation between Cisco Systems and Madrigal Pharmaceuticals

Given the investment horizon of 90 days Cisco Systems is expected to generate 1.29 times less return on investment than Madrigal Pharmaceuticals. But when comparing it to its historical volatility, Cisco Systems is 2.55 times less risky than Madrigal Pharmaceuticals. It trades about 0.26 of its potential returns per unit of risk. Madrigal Pharmaceuticals is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,477  in Madrigal Pharmaceuticals on September 3, 2022 and sell it today you would earn a total of  1,539  from holding Madrigal Pharmaceuticals or generate 23.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Cisco Systems  vs.  Madrigal Pharmaceuticals

 Performance (%) 
       Timeline  
Cisco Systems 
Cisco Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental indicators, Cisco Systems disclosed solid returns over the last few months and may actually be approaching a breakup point.

Cisco Price Channel

Madrigal Pharmaceuticals 
Madrigal Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Madrigal Pharmaceuticals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, Madrigal Pharmaceuticals revealed solid returns over the last few months and may actually be approaching a breakup point.

Madrigal Price Channel

Cisco Systems and Madrigal Pharmaceuticals Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and Madrigal Pharmaceuticals

The main advantage of trading using opposite Cisco Systems and Madrigal Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Madrigal Pharmaceuticals 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 Madrigal Pharmaceuticals will offset losses from the drop in Madrigal Pharmaceuticals' long position.
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The idea behind Cisco Systems and Madrigal Pharmaceuticals 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.
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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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