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
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Philip and Imperial is 0.64. 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 International is expected to generate 1.1 times more return on investment than Imperial Brands. However, Philip Morris is 1.1 times more volatile than Imperial Brands PLC. It trades about 0.13 of its potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.13 per unit of risk. If you would invest 8,941 in Philip Morris International on August 24, 2024 and sell it today you would earn a total of 4,149 from holding Philip Morris International or generate 46.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| 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. Japan Tobacco | Imperial Brands vs. British American Tobacco | Imperial Brands vs. Turning Point Brands | Imperial Brands vs. Universal |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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