Correlation Between Pfizer and NORFOLK

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

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

Diversification Opportunities for Pfizer and NORFOLK

0.14

Correlation Coefficient

Pfizer  NORFOLK

Average diversification

The 3 months correlation between Pfizer and NORFOLK is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and NORFOLK SOUTHN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORFOLK SOUTHN P 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 NORFOLK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORFOLK SOUTHN P has no effect on the direction of Pfizer i.e., Pfizer and NORFOLK go up and down completely randomly.

Pair Corralation between Pfizer and NORFOLK

Considering the 90-day investment horizon Pfizer is expected to generate 13.97 times less return on investment than NORFOLK. But when comparing it to its historical volatility, Pfizer Inc is 1.0 times less risky than NORFOLK. It trades about 0.01 of its potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,718  in NORFOLK SOUTHN P on December 23, 2024 and sell it today you would earn a total of  257.00  from holding NORFOLK SOUTHN P or generate 2.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	57.38%
Values	Daily Returns

Pfizer Inc  vs.  NORFOLK SOUTHN P

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

NORFOLK SOUTHN P

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NORFOLK SOUTHN P are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, NORFOLK 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 NORFOLK

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

The idea behind Pfizer Inc and NORFOLK SOUTHN P 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.