Correlation Between Merger Fund and Pfizer

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

Diversification Opportunities for Merger Fund and Pfizer

-0.6
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Merger and Pfizer is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Merger Fund and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc and Merger Fund 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 Merger Fund 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 Merger Fund i.e., Merger Fund and Pfizer go up and down completely randomly.

Pair Corralation between Merger Fund and Pfizer

Assuming the 90 days horizon Merger Fund is expected to generate 0.1 times more return on investment than Pfizer. However, Merger Fund is 9.66 times less risky than Pfizer. It trades about 0.04 of its potential returns per unit of risk. Pfizer Inc is currently generating about -0.18 per unit of risk. If you would invest  1,739  in Merger Fund on July 8, 2022 and sell it today you would earn a total of  4.00  from holding Merger Fund or generate 0.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy97.67%
ValuesDaily Returns

Merger Fund  vs.  Pfizer Inc

 Performance (%) 
       Timeline  
Merger Fund 
Merger Performance
12 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merger Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Merger Fund is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Merger 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 conflicting performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in November 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pfizer Price Channel

Merger Fund and Pfizer Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merger Fund and Pfizer

The main advantage of trading using opposite Merger Fund and Pfizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merger Fund 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.
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The idea behind Merger Fund 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.
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

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