Correlation Between Philip Morris and Expand Energy

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

Diversification Opportunities for Philip Morris and Expand Energy

0.59

Correlation Coefficient

Philip Morris  Expand Energy

Very weak diversification

The 3 months correlation between Philip and Expand is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Expand Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expand Energy 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 Expand Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expand Energy has no effect on the direction of Philip Morris i.e., Philip Morris and Expand Energy go up and down completely randomly.

Pair Corralation between Philip Morris and Expand Energy

Allowing for the 90-day total investment horizon Philip Morris International is expected to generate 0.66 times more return on investment than Expand Energy. However, Philip Morris International is 1.51 times less risky than Expand Energy. It trades about 0.06 of its potential returns per unit of risk. Expand Energy is currently generating about 0.02 per unit of risk. If you would invest  9,230  in Philip Morris International on September 20, 2024 and sell it today you would earn a total of  3,069  from holding Philip Morris International or generate 33.25% return on investment over 90 days.

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

Philip Morris International  vs.  Expand Energy

Philip Morris Intern

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 3 (%) 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.

Expand Energy

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expand Energy are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Expand Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Philip Morris and Expand Energy

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

The idea behind Philip Morris International and Expand Energy 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.