Correlation Between Philip Morris and Scandinavian Tobacco

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

Diversification Opportunities for Philip Morris and Scandinavian Tobacco

-0.64

Correlation Coefficient

Philip Morris  Scandinavian Tobacco

Excellent diversification

The 3 months correlation between Philip and Scandinavian is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian 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 Scandinavian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Tobacco has no effect on the direction of Philip Morris i.e., Philip Morris and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Philip Morris and Scandinavian Tobacco

Assuming the 90 days trading horizon Philip Morris International is expected to under-perform the Scandinavian Tobacco. But the stock apears to be less risky and, when comparing its historical volatility, Philip Morris International is 2.27 times less risky than Scandinavian Tobacco. The stock trades about -0.34 of its potential returns per unit of risk. The Scandinavian Tobacco Group is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  1,288  in Scandinavian Tobacco Group on September 24, 2024 and sell it today you would lose (48.00) from holding Scandinavian Tobacco Group or give up 3.73% of portfolio value over 90 days.

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

Philip Morris International  vs.  Scandinavian Tobacco Group

Philip Morris Intern

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Philip Morris may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Scandinavian Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scandinavian Tobacco Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Philip Morris and Scandinavian Tobacco

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

The idea behind Philip Morris International and Scandinavian Tobacco Group 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.