Correlation Between Philip Morris and Royalty Management

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

Diversification Opportunities for Philip Morris and Royalty Management

-0.56

Correlation Coefficient

Philip Morris  Royalty Management

Excellent diversification

The 3 months correlation between Philip and Royalty is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Royalty Management Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royalty Management 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 Royalty Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royalty Management has no effect on the direction of Philip Morris i.e., Philip Morris and Royalty Management go up and down completely randomly.

Pair Corralation between Philip Morris and Royalty Management

Allowing for the 90-day total investment horizon Philip Morris is expected to generate 61.76 times less return on investment than Royalty Management. But when comparing it to its historical volatility, Philip Morris International is 30.79 times less risky than Royalty Management. It trades about 0.06 of its potential returns per unit of risk. Royalty Management Holding is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Royalty Management Holding on September 18, 2024 and sell it today you would lose (4.50) from holding Royalty Management Holding or give up 75.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	31.72%
Values	Daily Returns

Philip Morris International  vs.  Royalty Management Holding

Philip Morris Intern

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 4 (%) 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.

Royalty Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royalty Management Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Royalty Management is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Philip Morris and Royalty Management

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

The idea behind Philip Morris International and Royalty Management Holding 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.