Correlation Between Philip Morris and Xunlei

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

Diversification Opportunities for Philip Morris and Xunlei

0.85

Correlation Coefficient

Philip Morris  Xunlei

Very poor diversification

The 3 months correlation between Philip and Xunlei is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Xunlei Ltd Adr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xunlei Ltd Adr 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 Xunlei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xunlei Ltd Adr has no effect on the direction of Philip Morris i.e., Philip Morris and Xunlei go up and down completely randomly.

Pair Corralation between Philip Morris and Xunlei

Allowing for the 90-day total investment horizon Philip Morris is expected to generate 3.91 times less return on investment than Xunlei. But when comparing it to its historical volatility, Philip Morris International is 3.62 times less risky than Xunlei. It trades about 0.22 of its potential returns per unit of risk. Xunlei Ltd Adr is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  210.00  in Xunlei Ltd Adr on December 26, 2024 and sell it today you would earn a total of  267.00  from holding Xunlei Ltd Adr or generate 127.14% return on investment over 90 days.

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

Philip Morris International  vs.  Xunlei Ltd Adr

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 17 (%) 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.

Xunlei Ltd Adr

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xunlei Ltd Adr are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, Xunlei unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Philip Morris and Xunlei

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

The idea behind Philip Morris International and Xunlei Ltd Adr 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.