Correlation Between PHILIP and 00108WAF7

Can any of the company-specific risk be diversified away by investing in both PHILIP and 00108WAF7 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 and 00108WAF7 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PHILIP MORRIS INTL and AEP TEX INC, you can compare the effects of market volatilities on PHILIP and 00108WAF7 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 with a short position of 00108WAF7. Check out your portfolio center. Please also check ongoing floating volatility patterns of PHILIP and 00108WAF7.

Diversification Opportunities for PHILIP and 00108WAF7

0.11

Correlation Coefficient

PHILIP  00108WAF7

Average diversification

The 3 months correlation between PHILIP and 00108WAF7 is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding PHILIP MORRIS INTL and AEP TEX INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEP TEX INC and PHILIP 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 INTL are associated (or correlated) with 00108WAF7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEP TEX INC has no effect on the direction of PHILIP i.e., PHILIP and 00108WAF7 go up and down completely randomly.

Pair Corralation between PHILIP and 00108WAF7

Assuming the 90 days trading horizon PHILIP MORRIS INTL is expected to under-perform the 00108WAF7. But the bond apears to be less risky and, when comparing its historical volatility, PHILIP MORRIS INTL is 179.91 times less risky than 00108WAF7. The bond trades about -0.09 of its potential returns per unit of risk. The AEP TEX INC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,797  in AEP TEX INC on September 24, 2024 and sell it today you would lose (129.00) from holding AEP TEX INC or give up 1.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	78.69%
Values	Daily Returns

PHILIP MORRIS INTL  vs.  AEP TEX INC

PHILIP MORRIS INTL

Risk-Adjusted Performance

0 of 100

Very Weak

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

AEP TEX INC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AEP TEX INC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, 00108WAF7 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PHILIP and 00108WAF7

The main advantage of trading using opposite PHILIP and 00108WAF7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PHILIP position performs unexpectedly, 00108WAF7 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 00108WAF7 will offset losses from the drop in 00108WAF7's long position.

The idea behind PHILIP MORRIS INTL and AEP TEX 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.