Correlation Between Pfizer and Vertex Pharmaceuticals

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

Diversification Opportunities for Pfizer and Vertex Pharmaceuticals

-0.27
  Correlation Coefficient

Very good diversification

The 3 months correlation between Pfizer and Vertex is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Vertex Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals 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 Vertex Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex Pharmaceuticals has no effect on the direction of Pfizer i.e., Pfizer and Vertex Pharmaceuticals go up and down completely randomly.

Pair Corralation between Pfizer and Vertex Pharmaceuticals

Considering the 90-day investment horizon Pfizer Inc is expected to generate 1.5 times more return on investment than Vertex Pharmaceuticals. However, Pfizer is 1.5 times more volatile than Vertex Pharmaceuticals. It trades about 0.1 of its potential returns per unit of risk. Vertex Pharmaceuticals is currently generating about -0.13 per unit of risk. If you would invest  2,689  in Pfizer Inc on December 29, 2023 and sell it today you would earn a total of  89.00  from holding Pfizer Inc or generate 3.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Pfizer Inc  vs.  Vertex Pharmaceuticals

 Performance 
       Timeline  
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.
Vertex Pharmaceuticals 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Vertex Pharmaceuticals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Vertex Pharmaceuticals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pfizer and Vertex Pharmaceuticals Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pfizer and Vertex Pharmaceuticals

The main advantage of trading using opposite Pfizer and Vertex Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer position performs unexpectedly, Vertex Pharmaceuticals 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 Vertex Pharmaceuticals will offset losses from the drop in Vertex Pharmaceuticals' long position.
The idea behind Pfizer Inc and Vertex Pharmaceuticals 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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