Correlation Between Philip Morris and American Public

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

Diversification Opportunities for Philip Morris and American Public

0.04

Correlation Coefficient

Philip Morris  American Public

Significant diversification

The 3 months correlation between Philip and American is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and American Public Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Public Education 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 American Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Public Education has no effect on the direction of Philip Morris i.e., Philip Morris and American Public go up and down completely randomly.

Pair Corralation between Philip Morris and American Public

Assuming the 90 days horizon Philip Morris International is expected to generate 0.41 times more return on investment than American Public. However, Philip Morris International is 2.44 times less risky than American Public. It trades about 0.19 of its potential returns per unit of risk. American Public Education is currently generating about 0.02 per unit of risk. If you would invest  11,523  in Philip Morris International on December 21, 2024 and sell it today you would earn a total of  2,497  from holding Philip Morris International or generate 21.67% return on investment over 90 days.

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

Philip Morris International  vs.  American Public Education

Philip Morris Intern

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Philip Morris reported solid returns over the last few months and may actually be approaching a breakup point.

American Public Education

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American Public is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Philip Morris and American Public

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

The idea behind Philip Morris International and American Public Education 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.