Correlation Between Altria and Ingredion Incorporated

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

By analyzing existing cross correlation between Altria Group and Ingredion Incorporated, you can compare the effects of market volatilities on Altria and Ingredion Incorporated 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 Altria with a short position of Ingredion Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Altria and Ingredion Incorporated.

Diversification Opportunities for Altria and Ingredion Incorporated

0.8

Correlation Coefficient

Altria  Ingredion Incorporated

Very poor diversification

The 3 months correlation between Altria and Ingredion is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Altria Group and Ingredion Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ingredion Incorporated and Altria 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 Altria Group are associated (or correlated) with Ingredion Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ingredion Incorporated has no effect on the direction of Altria i.e., Altria and Ingredion Incorporated go up and down completely randomly.

Pair Corralation between Altria and Ingredion Incorporated

Allowing for the 90-day total investment horizon Altria is expected to generate 1.35 times less return on investment than Ingredion Incorporated. But when comparing it to its historical volatility, Altria Group is 1.24 times less risky than Ingredion Incorporated. It trades about 0.06 of its potential returns per unit of risk. Ingredion Incorporated is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,332  in Ingredion Incorporated on September 20, 2024 and sell it today you would earn a total of  4,546  from holding Ingredion Incorporated or generate 48.71% return on investment over 90 days.

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

Altria Group  vs.  Ingredion Incorporated

Altria Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Altria is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Ingredion Incorporated

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ingredion Incorporated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Ingredion Incorporated is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Altria and Ingredion Incorporated

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

The idea behind Altria Group and Ingredion Incorporated 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.