Correlation Between Pfizer and American Beacon

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

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

Diversification Opportunities for Pfizer and American Beacon

0.69

Correlation Coefficient

Pfizer  American Beacon

Poor diversification

The 3 months correlation between Pfizer and American is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and American Beacon Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Small 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 American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Small has no effect on the direction of Pfizer i.e., Pfizer and American Beacon go up and down completely randomly.

Pair Corralation between Pfizer and American Beacon

Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the American Beacon. In addition to that, Pfizer is 16.87 times more volatile than American Beacon Small. It trades about -0.04 of its total potential returns per unit of risk. American Beacon Small is currently generating about 0.02 per unit of volatility. If you would invest  2,142  in American Beacon Small on September 15, 2024 and sell it today you would earn a total of  1.00  from holding American Beacon Small or generate 0.05% return on investment over 90 days.

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

Pfizer Inc  vs.  American Beacon Small

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 uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

American Beacon Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Beacon Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, American Beacon is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pfizer and American Beacon

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

The idea behind Pfizer Inc and American Beacon Small 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.