Correlation Between Philip Morris and Pfizer

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

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

Diversification Opportunities for Philip Morris and Pfizer

0.28

Correlation Coefficient

Philip Morris  Pfizer

Modest diversification

The 3 months correlation between Philip and Pfizer is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc and Philip Morris 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 Philip Morris International 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 Philip Morris i.e., Philip Morris and Pfizer go up and down completely randomly.

Pair Corralation between Philip Morris and Pfizer

Allowing for the 90-day total investment horizon Philip Morris International is expected to generate 0.82 times more return on investment than Pfizer. However, Philip Morris International is 1.22 times less risky than Pfizer. It trades about 0.02 of its potential returns per unit of risk. Pfizer Inc is currently generating about -0.06 per unit of risk. If you would invest  8,961  in Philip Morris International on January 25, 2024 and sell it today you would earn a total of  805.00  from holding Philip Morris International or generate 8.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Philip Morris International  vs.  Pfizer Inc

Philip Morris Intern

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Philip Morris may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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 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.

Pair Trading with Philip Morris and Pfizer

The main advantage of trading using opposite Philip Morris and Pfizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Philip Morris 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 Philip Morris International 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.