Correlation Between Imperial Brands and Philip Morris

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

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

Diversification Opportunities for Imperial Brands and Philip Morris

0.96

Correlation Coefficient

Imperial Brands  Philip Morris

Almost no diversification

The 3 months correlation between Imperial and Philip is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC 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 Imperial Brands 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 Imperial Brands PLC 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 Imperial Brands i.e., Imperial Brands and Philip Morris go up and down completely randomly.

Pair Corralation between Imperial Brands and Philip Morris

Assuming the 90 days horizon Imperial Brands is expected to generate 1.79 times less return on investment than Philip Morris. But when comparing it to its historical volatility, Imperial Brands PLC is 1.65 times less risky than Philip Morris. It trades about 0.23 of its potential returns per unit of risk. Philip Morris International is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  11,896  in Philip Morris International on December 29, 2024 and sell it today you would earn a total of  3,620  from holding Philip Morris International or generate 30.43% return on investment over 90 days.

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

Imperial Brands PLC  vs.  Philip Morris International

Imperial Brands PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Imperial Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Philip Morris Intern

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 19 (%) 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 Imperial Brands and Philip Morris

The main advantage of trading using opposite Imperial Brands and Philip Morris positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Brands 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 Imperial Brands PLC 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.