Correlation Between PFIZER and NL Industries

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

By analyzing existing cross correlation between PFIZER INC 72 and NL Industries, you can compare the effects of market volatilities on PFIZER and NL Industries 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 NL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of PFIZER and NL Industries.

Diversification Opportunities for PFIZER and NL Industries

-0.8

Correlation Coefficient

PFIZER  NL Industries

Pay attention - limited upside

The 3 months correlation between PFIZER and NL Industries is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding PFIZER INC 72 and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries 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 72 are associated (or correlated) with NL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NL Industries has no effect on the direction of PFIZER i.e., PFIZER and NL Industries go up and down completely randomly.

Pair Corralation between PFIZER and NL Industries

Assuming the 90 days trading horizon PFIZER INC 72 is expected to under-perform the NL Industries. But the bond apears to be less risky and, when comparing its historical volatility, PFIZER INC 72 is 3.41 times less risky than NL Industries. The bond trades about -0.08 of its potential returns per unit of risk. The NL Industries is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  628.00  in NL Industries on September 5, 2024 and sell it today you would earn a total of  193.00  from holding NL Industries or generate 30.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

PFIZER INC 72  vs.  NL Industries

PFIZER INC 72

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PFIZER INC 72 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PFIZER is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

NL Industries

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PFIZER and NL Industries

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

The idea behind PFIZER INC 72 and NL Industries 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.