Correlation Between Pfizer and Bank of America

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

By analyzing existing cross correlation between Pfizer Inc and Bank of America, you can compare the effects of market volatilities on Pfizer and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pfizer and Bank of America.

Diversification Opportunities for Pfizer and Bank of America

-0.7

Correlation Coefficient

Pfizer  Bank of America

Excellent diversification

The 3 months correlation between Pfizer and Bank is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of Pfizer i.e., Pfizer and Bank of America go up and down completely randomly.

Pair Corralation between Pfizer and Bank of America

Assuming the 90 days trading horizon Pfizer Inc is expected to generate 0.72 times more return on investment than Bank of America. However, Pfizer Inc is 1.39 times less risky than Bank of America. It trades about 0.3 of its potential returns per unit of risk. Bank of America is currently generating about 0.02 per unit of risk. If you would invest  2,576  in Pfizer Inc on October 10, 2024 and sell it today you would earn a total of  168.00  from holding Pfizer Inc or generate 6.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	76.92%
Values	Daily Returns

Pfizer Inc  vs.  Bank of America

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 very healthy primary indicators, Pfizer is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Bank of America

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak primary indicators, Bank of America displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pfizer and Bank of America

The main advantage of trading using opposite Pfizer and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.

The idea behind Pfizer Inc and Bank of America 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.