Correlation Between Cisco Systems and Pfizer

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

Diversification Opportunities for Cisco Systems and Pfizer

-0.09
  Correlation Coefficient

Good diversification

The 3 months correlation between Cisco and Pfizer is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc 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 Pfizer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pfizer Inc has no effect on the direction of Cisco Systems i.e., Cisco Systems and Pfizer go up and down completely randomly.

Pair Corralation between Cisco Systems and Pfizer

Given the investment horizon of 90 days Cisco Systems is expected to generate 1.15 times more return on investment than Pfizer. However, Cisco Systems is 1.15 times more volatile than Pfizer Inc. It trades about 0.32 of its potential returns per unit of risk. Pfizer Inc is currently generating about -0.11 per unit of risk. If you would invest  4,413  in Cisco Systems on May 21, 2022 and sell it today you would earn a total of  524.00  from holding Cisco Systems or generate 11.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Cisco Systems  vs.  Pfizer Inc

 Performance (%) 
       Timeline  
Cisco Systems 
Cisco Performance
12 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite sluggish fundamental indicators, Cisco Systems disclosed solid returns over the last few months and may actually be approaching a breakup point.

Cisco Price Channel

Pfizer Inc 
Pfizer Performance
0 of 100
Over the last 90 days Pfizer Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pfizer Price Channel

Cisco Systems and Pfizer Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cisco Systems and Pfizer

The main advantage of trading using opposite Cisco Systems and Pfizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems position performs unexpectedly, Pfizer 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 Pfizer will offset losses from the drop in Pfizer's long position.

Cisco Systems

Pair trading matchups for Cisco Systems

The idea behind Cisco Systems and Pfizer Inc 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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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