Correlation Between Philip Morris and Farmer Bros

Can any of the company-specific risk be diversified away by investing in both Philip Morris and Farmer Bros 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 Farmer Bros 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 Farmer Bros Co, you can compare the effects of market volatilities on Philip Morris and Farmer Bros 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 Farmer Bros. Check out your portfolio center. Please also check ongoing floating volatility patterns of Philip Morris and Farmer Bros.

Diversification Opportunities for Philip Morris and Farmer Bros

-0.62

Correlation Coefficient

Philip Morris  Farmer Bros

Excellent diversification

The 3 months correlation between Philip and Farmer is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Farmer Bros Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmer Bros 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 Farmer Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmer Bros has no effect on the direction of Philip Morris i.e., Philip Morris and Farmer Bros go up and down completely randomly.

Pair Corralation between Philip Morris and Farmer Bros

Allowing for the 90-day total investment horizon Philip Morris International is expected to generate 0.23 times more return on investment than Farmer Bros. However, Philip Morris International is 4.32 times less risky than Farmer Bros. It trades about 0.01 of its potential returns per unit of risk. Farmer Bros Co is currently generating about 0.0 per unit of risk. If you would invest  9,607  in Philip Morris International on February 16, 2024 and sell it today you would earn a total of  450.00  from holding Philip Morris International or generate 4.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Philip Morris International  vs.  Farmer Bros Co

Philip Morris Intern

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal primary indicators, Philip Morris displayed solid returns over the last few months and may actually be approaching a breakup point.

Farmer Bros

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmer Bros Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Philip Morris and Farmer Bros

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

The idea behind Philip Morris International and Farmer Bros Co 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.