Correlation Between Pfizer and Legg Mason

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

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

Diversification Opportunities for Pfizer and Legg Mason

-0.09

Correlation Coefficient

Pfizer  Legg Mason

Good diversification

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

Pair Corralation between Pfizer and Legg Mason

Considering the 90-day investment horizon Pfizer Inc is expected to generate 1.93 times more return on investment than Legg Mason. However, Pfizer is 1.93 times more volatile than Legg Mason Partners. It trades about 0.02 of its potential returns per unit of risk. Legg Mason Partners is currently generating about -0.06 per unit of risk. If you would invest  2,593  in Pfizer Inc on December 20, 2024 and sell it today you would earn a total of  28.00  from holding Pfizer Inc or generate 1.08% 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.  Legg Mason Partners

Pfizer Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pfizer Inc are ranked lower than 1 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Legg Mason Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Legg Mason Partners has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pfizer and Legg Mason

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

The idea behind Pfizer Inc and Legg Mason Partners 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.