Correlation Between First Trust and PFIZER

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

By analyzing existing cross correlation between First Trust Exchange Traded and PFIZER INC 3, you can compare the effects of market volatilities on First Trust and PFIZER 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 First Trust with a short position of PFIZER. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and PFIZER.

Diversification Opportunities for First Trust and PFIZER

-0.52

Correlation Coefficient

First Trust  PFIZER

Excellent diversification

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

Pair Corralation between First Trust and PFIZER

Given the investment horizon of 90 days First Trust Exchange Traded is expected to generate 1.62 times more return on investment than PFIZER. However, First Trust is 1.62 times more volatile than PFIZER INC 3. It trades about 0.13 of its potential returns per unit of risk. PFIZER INC 3 is currently generating about 0.01 per unit of risk. If you would invest  1,756  in First Trust Exchange Traded on September 24, 2024 and sell it today you would earn a total of  1,064  from holding First Trust Exchange Traded or generate 60.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

First Trust Exchange Traded  vs.  PFIZER INC 3

First Trust Exchange

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

PFIZER INC 3

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PFIZER INC 3 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PFIZER is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and PFIZER

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

The idea behind First Trust Exchange Traded and PFIZER INC 3 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.