Correlation Between Pfizer and Microsoft
Can any of the company-specific risk be diversified away by investing in both Pfizer and Microsoft 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 Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pfizer Inc and Microsoft, you can compare the effects of market volatilities on Pfizer and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pfizer and Microsoft.
Diversification Opportunities for Pfizer and Microsoft
Almost no diversification
The 3 months correlation between Pfizer and Microsoft is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Pfizer i.e., Pfizer and Microsoft go up and down completely randomly.
Pair Corralation between Pfizer and Microsoft
Assuming the 90 days trading horizon Pfizer Inc is expected to under-perform the Microsoft. In addition to that, Pfizer is 1.45 times more volatile than Microsoft. It trades about -0.27 of its total potential returns per unit of risk. Microsoft is currently generating about -0.05 per unit of volatility. If you would invest 1,572,500 in Microsoft on September 1, 2024 and sell it today you would lose (25,000) from holding Microsoft or give up 1.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Pfizer Inc vs. Microsoft
Performance |
| Timeline |
| Pfizer Inc |
| Microsoft |
Pfizer and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pfizer and Microsoft
The main advantage of trading using opposite Pfizer and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| Pfizer vs. Transportadora de Gas | Pfizer vs. Harmony Gold Mining | Pfizer vs. United States Steel | Pfizer vs. Agrometal SAI |
| Microsoft vs. Transportadora de Gas | Microsoft vs. Agrometal SAI | Microsoft vs. United States Steel | Microsoft vs. Harmony Gold Mining |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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