Correlation Between Pfizer and GSK Plc

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

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

Diversification Opportunities for Pfizer and GSK Plc

-0.06

Correlation Coefficient

Pfizer  GSK Plc

Good diversification

The 3 months correlation between Pfizer and GSK is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and GSK plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSK plc 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 GSK Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSK plc has no effect on the direction of Pfizer i.e., Pfizer and GSK Plc go up and down completely randomly.

Pair Corralation between Pfizer and GSK Plc

Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the GSK Plc. But the stock apears to be less risky and, when comparing its historical volatility, Pfizer Inc is 2.12 times less risky than GSK Plc. The stock trades about -0.06 of its potential returns per unit of risk. The GSK plc is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,730  in GSK plc on December 4, 2024 and sell it today you would earn a total of  154.00  from holding GSK plc or generate 8.9% return on investment over 90 days.

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

Pfizer Inc  vs.  GSK plc

Pfizer Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pfizer Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

GSK plc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GSK plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GSK Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pfizer and GSK Plc

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

The idea behind Pfizer Inc and GSK plc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.