Correlation Between Anheuser Busch and Philip Morris

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

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

Diversification Opportunities for Anheuser Busch and Philip Morris

0.48

Correlation Coefficient

Anheuser Busch  Philip Morris

Very weak diversification

The 3 months correlation between Anheuser and Philip is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Anheuser Busch Inbev and Philip Morris International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris Intern and Anheuser Busch 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 Anheuser Busch Inbev 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 Intern has no effect on the direction of Anheuser Busch i.e., Anheuser Busch and Philip Morris go up and down completely randomly.

Pair Corralation between Anheuser Busch and Philip Morris

Considering the 90-day investment horizon Anheuser Busch is expected to generate 8.01 times less return on investment than Philip Morris. But when comparing it to its historical volatility, Anheuser Busch Inbev is 1.3 times less risky than Philip Morris. It trades about 0.03 of its potential returns per unit of risk. Philip Morris International is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  13,160  in Philip Morris International on November 28, 2024 and sell it today you would earn a total of  2,582  from holding Philip Morris International or generate 19.62% return on investment over 90 days.

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

Anheuser Busch Inbev  vs.  Philip Morris International

Anheuser Busch Inbev

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Anheuser Busch Inbev are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Anheuser Busch is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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 13 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent primary indicators, Philip Morris displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Anheuser Busch and Philip Morris

The main advantage of trading using opposite Anheuser Busch and Philip Morris positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anheuser Busch 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 Anheuser Busch Inbev and Philip Morris International 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.