Correlation Between Philip Morris and British American
Can any of the company-specific risk be diversified away by investing in both Philip Morris and British American 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 American 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 American 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 American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Philip Morris and British American.
Diversification Opportunities for Philip Morris and British American
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Philip and British is 0.52. 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 American. 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 American go up and down completely randomly.
Pair Corralation between Philip Morris and British American
Assuming the 90 days trading horizon Philip Morris International is expected to generate 0.85 times more return on investment than British American. However, Philip Morris International is 1.18 times less risky than British American. It trades about 0.1 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.07 per unit of risk. If you would invest 7,995 in Philip Morris International on September 12, 2024 and sell it today you would earn a total of 4,293 from holding Philip Morris International or generate 53.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Philip Morris International vs. British American Tobacco
Performance |
| Timeline |
| Philip Morris Intern |
| British American Tobacco |
Philip Morris and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Philip Morris and British American
The main advantage of trading using opposite Philip Morris and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Philip Morris position performs unexpectedly, British American 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 American will offset losses from the drop in British American's long position.| Philip Morris vs. British American Tobacco | Philip Morris vs. British American Tobacco | Philip Morris vs. Japan Tobacco | Philip Morris vs. JAPAN TOBACCO UNSPADR12 |
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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 the Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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