Correlation Between Pfizer and Novartis

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

Diversification Opportunities for Pfizer and Novartis

0.12
  Correlation Coefficient

Average diversification

The 3 months correlation between Pfizer and Novartis is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG 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 Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG has no effect on the direction of Pfizer i.e., Pfizer and Novartis go up and down completely randomly.

Pair Corralation between Pfizer and Novartis

Considering the 90-day investment horizon Pfizer Inc is expected to generate 0.85 times more return on investment than Novartis. However, Pfizer Inc is 1.17 times less risky than Novartis. It trades about 0.1 of its potential returns per unit of risk. Novartis AG is currently generating about -0.21 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 Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Pfizer Inc  vs.  Novartis AG

 Performance 
       Timeline  
Pfizer Inc 

Risk-Adjusted Performance

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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.
Novartis AG 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Novartis AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Novartis is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pfizer and Novartis Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pfizer and Novartis

The main advantage of trading using opposite Pfizer and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer position performs unexpectedly, Novartis 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 Novartis will offset losses from the drop in Novartis' long position.
The idea behind Pfizer Inc and Novartis AG 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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