Correlation Between Pfizer and McKesson

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

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

Diversification Opportunities for Pfizer and McKesson

-0.27

Correlation Coefficient

Pfizer  McKesson

Very good diversification

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

Pair Corralation between Pfizer and McKesson

Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the McKesson. In addition to that, Pfizer is 1.08 times more volatile than McKesson. It trades about -0.5 of its total potential returns per unit of risk. McKesson is currently generating about -0.13 per unit of volatility. If you would invest  53,075  in McKesson on January 20, 2024 and sell it today you would lose (1,194) from holding McKesson or give up 2.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Pfizer Inc  vs.  McKesson

Pfizer Inc

Risk-Adjusted Performance

0 of 100

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 latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

McKesson

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, McKesson may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Pfizer and McKesson

The main advantage of trading using opposite Pfizer and McKesson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer position performs unexpectedly, McKesson 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 McKesson will offset losses from the drop in McKesson's long position.

The idea behind Pfizer Inc and McKesson 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.