Correlation Between PFIZER and GMS

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

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

Diversification Opportunities for PFIZER and GMS

0.26

Correlation Coefficient

PFIZER  GMS

Modest diversification

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

Pair Corralation between PFIZER and GMS

Assuming the 90 days trading horizon PFIZER INC is expected to generate 0.19 times more return on investment than GMS. However, PFIZER INC is 5.34 times less risky than GMS. It trades about -0.25 of its potential returns per unit of risk. GMS Inc is currently generating about -0.05 per unit of risk. If you would invest  9,287  in PFIZER INC on September 29, 2024 and sell it today you would lose (470.00) from holding PFIZER INC or give up 5.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

PFIZER INC  vs.  GMS Inc

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. 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.

GMS Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMS Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, GMS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PFIZER and GMS

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

The idea behind PFIZER INC and GMS Inc 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.