Correlation Between Philip Morris and Insteel Industries

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

Diversification Opportunities for Philip Morris and Insteel Industries

0.3

Correlation Coefficient

Philip Morris  Insteel Industries

Weak diversification

The 3 months correlation between Philip and Insteel is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries 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 Insteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insteel Industries has no effect on the direction of Philip Morris i.e., Philip Morris and Insteel Industries go up and down completely randomly.

Pair Corralation between Philip Morris and Insteel Industries

Allowing for the 90-day total investment horizon Philip Morris International is expected to generate 0.59 times more return on investment than Insteel Industries. However, Philip Morris International is 1.69 times less risky than Insteel Industries. It trades about -0.27 of its potential returns per unit of risk. Insteel Industries is currently generating about -0.37 per unit of risk. If you would invest  12,905  in Philip Morris International on October 5, 2024 and sell it today you would lose (703.00) from holding Philip Morris International or give up 5.45% of portfolio value over 90 days.

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

Philip Morris International  vs.  Insteel Industries

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 recent stock price disarray, may contribute to short-term losses for the investors.

Insteel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Philip Morris and Insteel Industries

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

The idea behind Philip Morris International and Insteel Industries 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.