Correlation Between Pfizer and Royce Small-cap

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

By analyzing existing cross correlation between Pfizer Inc and Royce Small Cap Value, you can compare the effects of market volatilities on Pfizer and Royce Small-cap 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 Royce Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pfizer and Royce Small-cap.

Diversification Opportunities for Pfizer and Royce Small-cap

-0.64

Correlation Coefficient

Pfizer  Royce Small-cap

Excellent diversification

The 3 months correlation between Pfizer and Royce is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Royce Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Small Cap 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 Royce Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Small Cap has no effect on the direction of Pfizer i.e., Pfizer and Royce Small-cap go up and down completely randomly.

Pair Corralation between Pfizer and Royce Small-cap

Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the Royce Small-cap. In addition to that, Pfizer is 1.12 times more volatile than Royce Small Cap Value. It trades about -0.08 of its total potential returns per unit of risk. Royce Small Cap Value is currently generating about 0.13 per unit of volatility. If you would invest  1,048  in Royce Small Cap Value on September 4, 2024 and sell it today you would earn a total of  109.00  from holding Royce Small Cap Value or generate 10.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Pfizer Inc  vs.  Royce Small Cap Value

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 latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Royce Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Small Cap Value are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Royce Small-cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pfizer and Royce Small-cap

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

The idea behind Pfizer Inc and Royce Small Cap Value 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.