Correlation Between Philip Morris and British Amer

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

Diversification Opportunities for Philip Morris and British Amer

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between Philip and British is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British Amer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Philip Morris i.e., Philip Morris and British Amer go up and down completely randomly.

Pair Corralation between Philip Morris and British Amer

Allowing for the 90-day total investment horizon Philip Morris International is expected to generate 0.97 times more return on investment than British Amer. However, Philip Morris International is 1.03 times less risky than British Amer. It trades about 0.07 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.04 per unit of risk. If you would invest  6,607  in Philip Morris International on February 21, 2022 and sell it today you would earn a total of  3,508  from holding Philip Morris International or generate 53.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Philip Morris International  vs.  British American Tobacco

 Performance (%) 
      Timeline 
Philip Morris Intern 
Philip Performance
0 of 100
Over the last 90 days Philip Morris International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady primary indicators, Philip Morris is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Philip Price Channel

British American Tobacco 
British Performance
0 of 100
Over the last 90 days British American Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

British Price Channel

Philip Morris and British Amer Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Philip Morris and British Amer

The main advantage of trading using opposite Philip Morris and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Philip Morris position performs unexpectedly, British Amer 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 British Amer will offset losses from the drop in British Amer's long position.
The idea behind Philip Morris International and British American Tobacco 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.

British American Tobacco

Pair trading matchups for British Amer

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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