Correlation Between Pfizer and United Therapeutics

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

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

Diversification Opportunities for Pfizer and United Therapeutics

-0.52

Correlation Coefficient

Pfizer  United Therapeutics

Excellent diversification

The 3 months correlation between Pfizer and United is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and United Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Therapeutics 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 United Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Therapeutics has no effect on the direction of Pfizer i.e., Pfizer and United Therapeutics go up and down completely randomly.

Pair Corralation between Pfizer and United Therapeutics

Considering the 90-day investment horizon Pfizer Inc is expected to generate 0.98 times more return on investment than United Therapeutics. However, Pfizer Inc is 1.02 times less risky than United Therapeutics. It trades about -0.08 of its potential returns per unit of risk. United Therapeutics is currently generating about -0.25 per unit of risk. If you would invest  2,619  in Pfizer Inc on September 13, 2024 and sell it today you would lose (86.50) from holding Pfizer Inc or give up 3.3% of portfolio value over 90 days.

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

Pfizer Inc  vs.  United Therapeutics

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.

United Therapeutics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Therapeutics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, United Therapeutics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pfizer and United Therapeutics

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

The idea behind Pfizer Inc and United Therapeutics 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.