Correlation Between British Amer and Philip Morris

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Can any of the company-specific risk be diversified away by investing in both British Amer and Philip Morris 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 British Amer and Philip Morris into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Philip Morris International, you can compare the effects of market volatilities on British Amer and Philip Morris 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 British Amer with a short position of Philip Morris. Check out your portfolio center. Please also check ongoing floating volatility patterns of British Amer and Philip Morris.

Diversification Opportunities for British Amer and Philip Morris

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between British and Philip is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Philip Morris International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris Intern and British Amer 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 British American Tobacco are associated (or correlated) with Philip Morris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philip Morris Intern has no effect on the direction of British Amer i.e., British Amer and Philip Morris go up and down completely randomly.

Pair Corralation between British Amer and Philip Morris

Considering the 90-day investment horizon British American Tobacco is expected to generate 1.25 times more return on investment than Philip Morris. However, British Amer is 1.25 times more volatile than Philip Morris International. It trades about -0.04 of its potential returns per unit of risk. Philip Morris International is currently generating about -0.11 per unit of risk. If you would invest  4,480  in British American Tobacco on March 28, 2022 and sell it today you would lose (85.00)  from holding British American Tobacco or give up 1.9% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

British American Tobacco  vs.  Philip Morris International

 Performance (%) 
      Timeline 
British American Tobacco 
British Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, British Amer is not utilizing all of its potentials. The new stock price disturbance, may contribute to mid-run losses for the stockholders.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0685
Payout Ratio
0.74
Last Split Factor
2:1
Forward Annual Dividend Rate
2.96
Dividend Date
2023-02-06
Ex Dividend Date
2022-07-07
Last Split Date
2017-02-14

British Price Channel

Philip Morris Intern 
Philip Performance
9 of 100
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. Even with relatively unsteady primary indicators, Philip Morris may actually be approaching a critical reversion point that can send shares even higher in July 2022.

Structure and Payout Changes

Forward Annual Dividend Yield
0.051
Payout Ratio
0.83
Forward Annual Dividend Rate
5.0
Dividend Date
2022-07-15
Ex Dividend Date
2022-03-23

Philip Price Channel

British Amer and Philip Morris Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with British Amer and Philip Morris

The main advantage of trading using opposite British Amer and Philip Morris positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British Amer position performs unexpectedly, Philip Morris 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 Philip Morris will offset losses from the drop in Philip Morris' long position.
The idea behind British American Tobacco and Philip Morris International 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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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