Correlation Between Philip Morris and IAA

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

Diversification Opportunities for Philip Morris and IAA

0.53

Correlation Coefficient

Philip Morris  IAA

Very weak diversification

The 3 months correlation between Philip and IAA is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and IAA Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAA Inc 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 IAA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IAA Inc has no effect on the direction of Philip Morris i.e., Philip Morris and IAA go up and down completely randomly.

Pair Corralation between Philip Morris and IAA

If you would invest  11,975  in Philip Morris International on September 23, 2024 and sell it today you would earn a total of  447.00  from holding Philip Morris International or generate 3.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.54%
Values	Daily Returns

Philip Morris International  vs.  IAA Inc

Philip Morris Intern

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Philip Morris is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

IAA Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IAA Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IAA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Philip Morris and IAA

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

The idea behind Philip Morris International and IAA Inc 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.