Correlation Between Pfizer and GlaxoSmithKline PLC

Can any of the company-specific risk be diversified away by investing in both Pfizer and GlaxoSmithKline 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 GlaxoSmithKline 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 GlaxoSmithKline PLC ADR, you can compare the effects of market volatilities on Pfizer and GlaxoSmithKline 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 GlaxoSmithKline PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pfizer and GlaxoSmithKline PLC.

Diversification Opportunities for Pfizer and GlaxoSmithKline PLC

-0.04

Correlation Coefficient

Pfizer  GlaxoSmithKline PLC

Good diversification

The 3 months correlation between Pfizer and GlaxoSmithKline is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and GlaxoSmithKline PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlaxoSmithKline PLC ADR 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 GlaxoSmithKline PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlaxoSmithKline PLC ADR has no effect on the direction of Pfizer i.e., Pfizer and GlaxoSmithKline PLC go up and down completely randomly.

Pair Corralation between Pfizer and GlaxoSmithKline PLC

Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the GlaxoSmithKline PLC. But the stock apears to be less risky and, when comparing its historical volatility, Pfizer Inc is 1.45 times less risky than GlaxoSmithKline PLC. The stock trades about -0.04 of its potential returns per unit of risk. The GlaxoSmithKline PLC ADR is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,328  in GlaxoSmithKline PLC ADR on December 28, 2024 and sell it today you would earn a total of  546.00  from holding GlaxoSmithKline PLC ADR or generate 16.41% 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.  GlaxoSmithKline PLC ADR

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.

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, GlaxoSmithKline PLC disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pfizer and GlaxoSmithKline PLC

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

The idea behind Pfizer Inc and GlaxoSmithKline PLC ADR 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.