Correlation Between Western Investment and Pfizer

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

By analyzing existing cross correlation between Western Investment and Pfizer Inc CDR, you can compare the effects of market volatilities on Western Investment 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 Western Investment with a short position of Pfizer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Investment and Pfizer.

Diversification Opportunities for Western Investment and Pfizer

0.04

Correlation Coefficient

Western Investment  Pfizer

Significant diversification

The 3 months correlation between Western and Pfizer is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Western Investment and Pfizer Inc CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc CDR and Western Investment 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 Western Investment 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 CDR has no effect on the direction of Western Investment i.e., Western Investment and Pfizer go up and down completely randomly.

Pair Corralation between Western Investment and Pfizer

Given the investment horizon of 90 days Western Investment is expected to generate 2.48 times more return on investment than Pfizer. However, Western Investment is 2.48 times more volatile than Pfizer Inc CDR. It trades about -0.01 of its potential returns per unit of risk. Pfizer Inc CDR is currently generating about -0.04 per unit of risk. If you would invest  57.00  in Western Investment on December 29, 2024 and sell it today you would lose (2.00) from holding Western Investment or give up 3.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Western Investment  vs.  Pfizer Inc CDR

Western Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Western Investment is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pfizer Inc CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pfizer Inc CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Pfizer is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Western Investment and Pfizer

The main advantage of trading using opposite Western Investment and Pfizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Investment 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 Western Investment and Pfizer Inc CDR 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.