Correlation Between Pfizer and Microsoft Corp

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

Diversification Opportunities for Pfizer and Microsoft Corp

0.27
  Correlation Coefficient

Modest diversification

The 3 months correlation between Pfizer and Microsoft is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp and Pfizer 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 Pfizer Inc are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of Pfizer i.e., Pfizer and Microsoft Corp go up and down completely randomly.

Pair Corralation between Pfizer and Microsoft Corp

Considering the 90-day investment horizon Pfizer Inc is expected to generate 1.02 times more return on investment than Microsoft Corp. However, Pfizer is 1.02 times more volatile than Microsoft Corp. It trades about 0.06 of its potential returns per unit of risk. Microsoft Corp is currently generating about 0.05 per unit of risk. If you would invest  3,178  in Pfizer Inc on May 13, 2022 and sell it today you would earn a total of  1,662  from holding Pfizer Inc or generate 52.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Pfizer Inc  vs.  Microsoft Corp

 Performance (%) 
       Timeline  
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 rather sound technical and fundamental indicators, Pfizer is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pfizer Price Channel

Microsoft Corp 
Microsoft Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Microsoft Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Microsoft Price Channel

Pfizer and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pfizer and Microsoft Corp

The main advantage of trading using opposite Pfizer and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.
The idea behind Pfizer Inc and Microsoft Corp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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