Correlation Between Philip Morris and Vital Farms

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

Diversification Opportunities for Philip Morris and Vital Farms

-0.8

Correlation Coefficient

Philip Morris  Vital Farms

Pay attention - limited upside

The 3 months correlation between Philip and Vital is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Vital Farms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vital Farms 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 Vital Farms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vital Farms has no effect on the direction of Philip Morris i.e., Philip Morris and Vital Farms go up and down completely randomly.

Pair Corralation between Philip Morris and Vital Farms

Allowing for the 90-day total investment horizon Philip Morris International is expected to generate 0.5 times more return on investment than Vital Farms. However, Philip Morris International is 2.0 times less risky than Vital Farms. It trades about 0.23 of its potential returns per unit of risk. Vital Farms is currently generating about -0.1 per unit of risk. If you would invest  12,083  in Philip Morris International on December 19, 2024 and sell it today you would earn a total of  3,301  from holding Philip Morris International or generate 27.32% return on investment over 90 days.

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

Philip Morris International  vs.  Vital Farms

Philip Morris Intern

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent primary indicators, Philip Morris displayed solid returns over the last few months and may actually be approaching a breakup point.

Vital Farms

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vital Farms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Philip Morris and Vital Farms

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

The idea behind Philip Morris International and Vital Farms 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.