Correlation Between GMO Internet and PFIZER

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

By analyzing existing cross correlation between GMO Internet and PFIZER INC, you can compare the effects of market volatilities on GMO Internet 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 GMO Internet with a short position of PFIZER. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMO Internet and PFIZER.

Diversification Opportunities for GMO Internet and PFIZER

-0.11

Correlation Coefficient

GMO Internet  PFIZER

Good diversification

The 3 months correlation between GMO and PFIZER is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and PFIZER INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PFIZER INC and GMO Internet 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 GMO Internet 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 GMO Internet i.e., GMO Internet and PFIZER go up and down completely randomly.

Pair Corralation between GMO Internet and PFIZER

Assuming the 90 days horizon GMO Internet is expected to generate 28.84 times more return on investment than PFIZER. However, GMO Internet is 28.84 times more volatile than PFIZER INC. It trades about 0.08 of its potential returns per unit of risk. PFIZER INC is currently generating about -0.01 per unit of risk. If you would invest  1,156  in GMO Internet on October 10, 2024 and sell it today you would earn a total of  524.00  from holding GMO Internet or generate 45.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.17%
Values	Daily Returns

GMO Internet  vs.  PFIZER INC

GMO Internet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMO Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the 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. Despite somewhat strong basic indicators, PFIZER is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GMO Internet and PFIZER

The main advantage of trading using opposite GMO Internet and PFIZER positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMO Internet 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 GMO Internet 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.