Correlation Between British American and Philip Morris
Can any of the company-specific risk be diversified away by investing in both British American and Philip Morris 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 British American and Philip Morris into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Philip Morris International, you can compare the effects of market volatilities on British American and Philip Morris 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 British American with a short position of Philip Morris. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Philip Morris.
Diversification Opportunities for British American and Philip Morris
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between British and Philip is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Philip Morris International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris Intern and British American 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 British American Tobacco are associated (or correlated) with Philip Morris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philip Morris Intern has no effect on the direction of British American i.e., British American and Philip Morris go up and down completely randomly.
Pair Corralation between British American and Philip Morris
Assuming the 90 days horizon British American is expected to generate 1.44 times less return on investment than Philip Morris. But when comparing it to its historical volatility, British American Tobacco is 1.68 times less risky than Philip Morris. It trades about 0.1 of its potential returns per unit of risk. Philip Morris International is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 10,763 in Philip Morris International on September 22, 2024 and sell it today you would earn a total of 983.00 from holding Philip Morris International or generate 9.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.48% |
| Values | Daily Returns |
British American Tobacco vs. Philip Morris International
Performance |
| Timeline |
| British American Tobacco |
| Philip Morris Intern |
British American and Philip Morris Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Philip Morris
The main advantage of trading using opposite British American and Philip Morris positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Philip Morris 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 Philip Morris will offset losses from the drop in Philip Morris' long position.| British American vs. Philip Morris International | British American vs. Philip Morris International | British American vs. British American Tobacco | British American vs. British American Tobacco |
| Philip Morris vs. Philip Morris International | Philip Morris vs. British American Tobacco | Philip Morris vs. British American Tobacco | Philip Morris vs. British American Tobacco |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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