Correlation Between Pfizer and First Trust

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

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

Diversification Opportunities for Pfizer and First Trust

0.09

Correlation Coefficient

Pfizer  First Trust

Significant diversification

The 3 months correlation between Pfizer and First is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and First Trust Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Enhanced 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Enhanced has no effect on the direction of Pfizer i.e., Pfizer and First Trust go up and down completely randomly.

Pair Corralation between Pfizer and First Trust

Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the First Trust. In addition to that, Pfizer is 1.35 times more volatile than First Trust Enhanced. It trades about -0.05 of its total potential returns per unit of risk. First Trust Enhanced is currently generating about -0.04 per unit of volatility. If you would invest  2,017  in First Trust Enhanced on December 27, 2024 and sell it today you would lose (48.00) from holding First Trust Enhanced or give up 2.38% of portfolio value over 90 days.

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

Pfizer Inc  vs.  First Trust Enhanced

Pfizer Inc

Risk-Adjusted Performance

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

First Trust Enhanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Enhanced has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pfizer and First Trust

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

The idea behind Pfizer Inc and First Trust Enhanced 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.