Correlation Between Philip Morris and British Amer

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

0.25

Correlation Coefficient

Philip Morris  British Amer

Modest diversification

The 3 months correlation between Philip and British is 0.25. 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 1.12 times more return on investment than British Amer. However, Philip Morris is 1.12 times more volatile than British American Tobacco. It trades about 0.15 of its potential returns per unit of risk. British American Tobacco is currently generating about -0.1 per unit of risk. If you would invest  9,115  in Philip Morris International on January 24, 2024 and sell it today you would earn a total of  291.00  from holding Philip Morris International or generate 3.19% return on investment over 90 days.

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

Philip Morris International  vs.  British American Tobacco

Philip Morris Intern

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Philip Morris is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

British American Tobacco

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, British Amer is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.