Correlation Between PFIZER and CarsalesCom

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

By analyzing existing cross correlation between PFIZER INC 3 and CarsalesCom Ltd ADR, you can compare the effects of market volatilities on PFIZER and CarsalesCom 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 CarsalesCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of PFIZER and CarsalesCom.

Diversification Opportunities for PFIZER and CarsalesCom

-0.26

Correlation Coefficient

PFIZER  CarsalesCom

Very good diversification

The 3 months correlation between PFIZER and CarsalesCom is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding PFIZER INC 3 and CarsalesCom Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom ADR 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 3 are associated (or correlated) with CarsalesCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom ADR has no effect on the direction of PFIZER i.e., PFIZER and CarsalesCom go up and down completely randomly.

Pair Corralation between PFIZER and CarsalesCom

Assuming the 90 days trading horizon PFIZER is expected to generate 15.76 times less return on investment than CarsalesCom. But when comparing it to its historical volatility, PFIZER INC 3 is 5.35 times less risky than CarsalesCom. It trades about 0.03 of its potential returns per unit of risk. CarsalesCom Ltd ADR is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,451  in CarsalesCom Ltd ADR on September 24, 2024 and sell it today you would earn a total of  1,956  from holding CarsalesCom Ltd ADR or generate 56.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	84.43%
Values	Daily Returns

PFIZER INC 3  vs.  CarsalesCom Ltd ADR

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.

CarsalesCom ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom Ltd ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, CarsalesCom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PFIZER and CarsalesCom

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

The idea behind PFIZER INC 3 and CarsalesCom Ltd ADR 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.