Correlation Between Cisco Systems and McCormick Company

Can any of the company-specific risk be diversified away by investing in both Cisco Systems and McCormick Company 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 McCormick Company into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cisco Systems and McCormick Company Incorporated, you can compare the effects of market volatilities on Cisco Systems and McCormick Company 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 McCormick Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and McCormick Company.

Diversification Opportunities for Cisco Systems and McCormick Company

0.44

Correlation Coefficient

Cisco Systems  McCormick Company

Very weak diversification

The 3 months correlation between Cisco and McCormick is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and McCormick Company Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McCormick Company 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 McCormick Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McCormick Company has no effect on the direction of Cisco Systems i.e., Cisco Systems and McCormick Company go up and down completely randomly.

Pair Corralation between Cisco Systems and McCormick Company

Given the investment horizon of 90 days Cisco Systems is expected to generate 2.08 times less return on investment than McCormick Company. But when comparing it to its historical volatility, Cisco Systems is 1.33 times less risky than McCormick Company. It trades about 0.05 of its potential returns per unit of risk. McCormick Company Incorporated is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,552  in McCormick Company Incorporated on December 30, 2024 and sell it today you would earn a total of  575.00  from holding McCormick Company Incorporated or generate 7.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Cisco Systems  vs.  McCormick Company Incorporated

Cisco Systems

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Cisco Systems is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

McCormick Company

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in McCormick Company Incorporated are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, McCormick Company may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cisco Systems and McCormick Company

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

The idea behind Cisco Systems and McCormick Company Incorporated 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.