Correlation Between Microsoft and Pfizer

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Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Pfizer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Pfizer Inc, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Pfizer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Pfizer.

Diversification Opportunities for Microsoft and Pfizer

-0.6
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Microsoft and Pfizer is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc and Microsoft 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 Microsoft 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 has no effect on the direction of Microsoft i.e., Microsoft and Pfizer go up and down completely randomly.

Pair Corralation between Microsoft and Pfizer

Given the investment horizon of 90 days Microsoft is expected to generate 1.21 times more return on investment than Pfizer. However, Microsoft is 1.21 times more volatile than Pfizer Inc. It trades about 0.05 of its potential returns per unit of risk. Pfizer Inc is currently generating about -0.07 per unit of risk. If you would invest  28,019  in Microsoft on December 30, 2023 and sell it today you would earn a total of  14,053  from holding Microsoft or generate 50.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  Pfizer Inc

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.
Pfizer Inc 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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 rather sound technical and fundamental indicators, Pfizer is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Microsoft and Pfizer Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Pfizer

The main advantage of trading using opposite Microsoft and Pfizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft and Pfizer 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.
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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