Correlation Between Philip Morris and Entravision Communications

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

Diversification Opportunities for Philip Morris and Entravision Communications

0.62

Correlation Coefficient

Philip Morris  Entravision Communications

Poor diversification

The 3 months correlation between Philip and Entravision is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Entravision Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entravision Communications 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 Entravision Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entravision Communications has no effect on the direction of Philip Morris i.e., Philip Morris and Entravision Communications go up and down completely randomly.

Pair Corralation between Philip Morris and Entravision Communications

Allowing for the 90-day total investment horizon Philip Morris is expected to generate 1.98 times less return on investment than Entravision Communications. But when comparing it to its historical volatility, Philip Morris International is 2.09 times less risky than Entravision Communications. It trades about 0.08 of its potential returns per unit of risk. Entravision Communications is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  206.00  in Entravision Communications on September 21, 2024 and sell it today you would earn a total of  48.00  from holding Entravision Communications or generate 23.3% return on investment over 90 days.

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

Philip Morris International  vs.  Entravision Communications

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.

Entravision Communications

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entravision Communications are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Entravision Communications exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Philip Morris and Entravision Communications

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

The idea behind Philip Morris International and Entravision Communications 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.