Correlation Between Philip Morris and Imperial Brands
Can any of the company-specific risk be diversified away by investing in both Philip Morris and Imperial Brands 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 Imperial Brands 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 Imperial Brands PLC, you can compare the effects of market volatilities on Philip Morris and Imperial Brands 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 Imperial Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Philip Morris and Imperial Brands.
Diversification Opportunities for Philip Morris and Imperial Brands
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Philip and Imperial is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Imperial Brands PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Brands PLC 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 Imperial Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Brands PLC has no effect on the direction of Philip Morris i.e., Philip Morris and Imperial Brands go up and down completely randomly.
Pair Corralation between Philip Morris and Imperial Brands
Allowing for the 90-day total investment horizon Philip Morris is expected to generate 9.15 times less return on investment than Imperial Brands. But when comparing it to its historical volatility, Philip Morris International is 1.7 times less risky than Imperial Brands. It trades about 0.01 of its potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 3,090 in Imperial Brands PLC on August 28, 2024 and sell it today you would earn a total of 103.00 from holding Imperial Brands PLC or generate 3.33% 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. Imperial Brands PLC
Performance |
| Timeline |
| Philip Morris Intern |
| Imperial Brands PLC |
Philip Morris and Imperial Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Philip Morris and Imperial Brands
The main advantage of trading using opposite Philip Morris and Imperial Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Philip Morris position performs unexpectedly, Imperial Brands 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 Imperial Brands will offset losses from the drop in Imperial Brands' long position.| Philip Morris vs. British American Tobacco | Philip Morris vs. Universal | Philip Morris vs. Imperial Brands PLC | Philip Morris vs. Altria Group |
| Imperial Brands vs. Imperial Brands PLC | Imperial Brands vs. RLX Technology | Imperial Brands vs. British American Tobacco | Imperial Brands vs. Turning Point Brands |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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