Correlation Between Pfizer and Overlay Shares

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

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

Diversification Opportunities for Pfizer and Overlay Shares

0.55

Correlation Coefficient

Pfizer  Overlay Shares

Very weak diversification

The 3 months correlation between Pfizer and Overlay is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Overlay Shares Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Core 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 Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Core has no effect on the direction of Pfizer i.e., Pfizer and Overlay Shares go up and down completely randomly.

Pair Corralation between Pfizer and Overlay Shares

Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the Overlay Shares. In addition to that, Pfizer is 4.33 times more volatile than Overlay Shares Core. It trades about -0.14 of its total potential returns per unit of risk. Overlay Shares Core is currently generating about -0.06 per unit of volatility. If you would invest  2,133  in Overlay Shares Core on September 13, 2024 and sell it today you would lose (28.00) from holding Overlay Shares Core or give up 1.31% of portfolio value over 90 days.

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

Pfizer Inc  vs.  Overlay Shares Core

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 abnormal performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Overlay Shares Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Overlay Shares Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Overlay Shares 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 Overlay Shares

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

The idea behind Pfizer Inc and Overlay Shares Core 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.