Correlation Between Philip Morris and Constellation Brands

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

Diversification Opportunities for Philip Morris and Constellation Brands

-0.51

Correlation Coefficient

Philip Morris  Constellation Brands

Excellent diversification

The 3 months correlation between Philip and Constellation is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Constellation Brands Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Brands 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 Constellation Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Brands has no effect on the direction of Philip Morris i.e., Philip Morris and Constellation Brands go up and down completely randomly.

Pair Corralation between Philip Morris and Constellation Brands

Allowing for the 90-day total investment horizon Philip Morris International is expected to generate 1.38 times more return on investment than Constellation Brands. However, Philip Morris is 1.38 times more volatile than Constellation Brands Class. It trades about 0.07 of its potential returns per unit of risk. Constellation Brands Class is currently generating about -0.02 per unit of risk. If you would invest  12,432  in Philip Morris International on September 1, 2024 and sell it today you would earn a total of  874.00  from holding Philip Morris International or generate 7.03% return on investment over 90 days.

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

Philip Morris International  vs.  Constellation Brands Class

Philip Morris Intern

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent primary indicators, Philip Morris may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Constellation Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Brands Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Constellation Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Philip Morris and Constellation Brands

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

The idea behind Philip Morris International and Constellation Brands Class 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.