Correlation Between Diageo PLC and Philip Morris

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

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

Diversification Opportunities for Diageo PLC and Philip Morris

-0.69

Correlation Coefficient

Diageo PLC  Philip Morris

Excellent diversification

The 3 months correlation between Diageo and Philip is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR 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 Diageo PLC 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 Diageo PLC ADR 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 Diageo PLC i.e., Diageo PLC and Philip Morris go up and down completely randomly.

Pair Corralation between Diageo PLC and Philip Morris

Considering the 90-day investment horizon Diageo PLC is expected to generate 7.81 times less return on investment than Philip Morris. But when comparing it to its historical volatility, Diageo PLC ADR is 1.02 times less risky than Philip Morris. It trades about 0.01 of its potential returns per unit of risk. Philip Morris International is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  10,834  in Philip Morris International on September 21, 2024 and sell it today you would earn a total of  1,383  from holding Philip Morris International or generate 12.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.07%
Values	Daily Returns

Diageo PLC ADR  vs.  Philip Morris International

Diageo PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Philip Morris Intern

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Philip Morris is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Diageo PLC and Philip Morris

The main advantage of trading using opposite Diageo PLC and Philip Morris positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC 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 Diageo PLC ADR 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.