Correlation Between Philip Morris and Selective Insurance

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

Diversification Opportunities for Philip Morris and Selective Insurance

0.58

Correlation Coefficient

Philip Morris  Selective Insurance

Very weak diversification

The 3 months correlation between Philip and Selective is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance 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 Selective Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selective Insurance has no effect on the direction of Philip Morris i.e., Philip Morris and Selective Insurance go up and down completely randomly.

Pair Corralation between Philip Morris and Selective Insurance

Assuming the 90 days horizon Philip Morris International is expected to generate 0.9 times more return on investment than Selective Insurance. However, Philip Morris International is 1.12 times less risky than Selective Insurance. It trades about -0.25 of its potential returns per unit of risk. Selective Insurance Group is currently generating about -0.33 per unit of risk. If you would invest  12,234  in Philip Morris International on October 4, 2024 and sell it today you would lose (542.00) from holding Philip Morris International or give up 4.43% of portfolio value over 90 days.

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

Philip Morris International  vs.  Selective Insurance Group

Philip Morris Intern

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Philip Morris may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Selective Insurance

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Selective Insurance 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 Selective Insurance

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

The idea behind Philip Morris International and Selective Insurance Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.