Correlation Between BP PLC and Pfizer

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

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

Diversification Opportunities for BP PLC and Pfizer

-0.25

Correlation Coefficient

BP PLC  Pfizer

Very good diversification

The 3 months correlation between BP PLC and Pfizer is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc and BP PLC 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 BP PLC ADR 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 BP PLC i.e., BP PLC and Pfizer go up and down completely randomly.

Pair Corralation between BP PLC and Pfizer

Allowing for the 90-day total investment horizon BP PLC ADR is expected to generate 0.62 times more return on investment than Pfizer. However, BP PLC ADR is 1.6 times less risky than Pfizer. It trades about 0.12 of its potential returns per unit of risk. Pfizer Inc is currently generating about 0.06 per unit of risk. If you would invest  3,497  in BP PLC ADR on February 19, 2024 and sell it today you would earn a total of  252.00  from holding BP PLC ADR or generate 7.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BP PLC ADR  vs.  Pfizer Inc

BP PLC ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BP PLC ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, BP PLC may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pfizer Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pfizer Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with BP PLC and Pfizer

The main advantage of trading using opposite BP PLC and Pfizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC 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 BP PLC ADR 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.

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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.