Correlation Between GSK Plc and Pfizer

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

By analyzing existing cross correlation between GSK plc and Pfizer Inc, you can compare the effects of market volatilities on GSK Plc 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 GSK Plc with a short position of Pfizer. Check out your portfolio center. Please also check ongoing floating volatility patterns of GSK Plc and Pfizer.

Diversification Opportunities for GSK Plc and Pfizer

0.85

Correlation Coefficient

GSK Plc  Pfizer

Very poor diversification

The 3 months correlation between GSK and Pfizer is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding GSK plc and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc and GSK Plc 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 GSK plc 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 GSK Plc i.e., GSK Plc and Pfizer go up and down completely randomly.

Pair Corralation between GSK Plc and Pfizer

Assuming the 90 days horizon GSK plc is expected to under-perform the Pfizer. In addition to that, GSK Plc is 2.04 times more volatile than Pfizer Inc. It trades about -0.12 of its total potential returns per unit of risk. Pfizer Inc is currently generating about -0.16 per unit of volatility. If you would invest  2,961  in Pfizer Inc on September 16, 2024 and sell it today you would lose (403.00) from holding Pfizer Inc or give up 13.61% of portfolio value over 90 days.

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

GSK plc  vs.  Pfizer Inc

GSK plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GSK plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pfizer Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pfizer Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with GSK Plc and Pfizer

The main advantage of trading using opposite GSK Plc and Pfizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GSK Plc 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.

The idea behind GSK plc 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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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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.