Correlation Between Microsoft and PFIZER

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

By analyzing existing cross correlation between Microsoft and PFIZER INC 43, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of PFIZER. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and PFIZER.

Diversification Opportunities for Microsoft and PFIZER

-0.12

Correlation Coefficient

Microsoft  PFIZER

Good diversification

The 3 months correlation between Microsoft and PFIZER is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PFIZER INC 43 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PFIZER INC 43 and Microsoft 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 Microsoft 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 43 has no effect on the direction of Microsoft i.e., Microsoft and PFIZER go up and down completely randomly.

Pair Corralation between Microsoft and PFIZER

Given the investment horizon of 90 days Microsoft is expected to generate 32.35 times less return on investment than PFIZER. But when comparing it to its historical volatility, Microsoft is 48.91 times less risky than PFIZER. It trades about 0.09 of its potential returns per unit of risk. PFIZER INC 43 is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9,395  in PFIZER INC 43 on September 24, 2024 and sell it today you would lose (762.00) from holding PFIZER INC 43 or give up 8.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	83.1%
Values	Daily Returns

Microsoft  vs.  PFIZER INC 43

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

PFIZER INC 43

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PFIZER INC 43 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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and PFIZER

The main advantage of trading using opposite Microsoft and PFIZER positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft and PFIZER INC 43 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.