Correlation Between Pfizer and Southwest Airlines

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

Diversification Opportunities for Pfizer and Southwest Airlines

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Pfizer and Southwest is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines 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 Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of Pfizer i.e., Pfizer and Southwest Airlines go up and down completely randomly.

Pair Corralation between Pfizer and Southwest Airlines

Considering the 90-day investment horizon Pfizer Inc is expected to generate 0.51 times more return on investment than Southwest Airlines. However, Pfizer Inc is 1.96 times less risky than Southwest Airlines. It trades about -0.05 of its potential returns per unit of risk. Southwest Airlines is currently generating about -0.11 per unit of risk. If you would invest  2,718  in Pfizer Inc on January 25, 2024 and sell it today you would lose (89.00) from holding Pfizer Inc or give up 3.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Pfizer Inc  vs.  Southwest Airlines

 Performance 
       Timeline  
Pfizer Inc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Southwest Airlines 

Risk-Adjusted Performance

0 of 100

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

Pfizer and Southwest Airlines Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pfizer and Southwest Airlines

The main advantage of trading using opposite Pfizer and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer position performs unexpectedly, Southwest Airlines 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 Southwest Airlines will offset losses from the drop in Southwest Airlines' long position.
The idea behind Pfizer Inc and Southwest Airlines 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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