Correlation Between PX Prague and Philip Morris

Can any of the company-specific risk be diversified away by investing in both PX Prague 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 PX Prague and Philip Morris into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PX Prague Stock and Philip Morris CR, you can compare the effects of market volatilities on PX Prague 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 PX Prague with a short position of Philip Morris. Check out your portfolio center. Please also check ongoing floating volatility patterns of PX Prague and Philip Morris.

Diversification Opportunities for PX Prague and Philip Morris

0.85

Correlation Coefficient

PX Prague  Philip Morris

Very poor diversification

The 3 months correlation between PX Prague and Philip is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding PX Prague Stock and Philip Morris CR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris CR and PX Prague 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 PX Prague Stock 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 CR has no effect on the direction of PX Prague i.e., PX Prague and Philip Morris go up and down completely randomly.

Pair Corralation between PX Prague and Philip Morris

Assuming the 90 days trading horizon PX Prague is expected to generate 1.34 times less return on investment than Philip Morris. But when comparing it to its historical volatility, PX Prague Stock is 1.39 times less risky than Philip Morris. It trades about 0.17 of its potential returns per unit of risk. Philip Morris CR is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,520,000  in Philip Morris CR on August 31, 2024 and sell it today you would earn a total of  104,000  from holding Philip Morris CR or generate 6.84% return on investment over 90 days.

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

PX Prague Stock  vs.  Philip Morris CR

Pair Trading with PX Prague and Philip Morris

The main advantage of trading using opposite PX Prague and Philip Morris positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PX Prague 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.

The idea behind PX Prague Stock and Philip Morris CR 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..