Correlation Between Philip Morris and Altria

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

Diversification Opportunities for Philip Morris and Altria

0.8

Correlation Coefficient

Philip Morris  Altria

Very poor diversification

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

Pair Corralation between Philip Morris and Altria

Assuming the 90 days trading horizon Philip Morris International is expected to under-perform the Altria. But the stock apears to be less risky and, when comparing its historical volatility, Philip Morris International is 1.22 times less risky than Altria. The stock trades about -0.4 of its potential returns per unit of risk. The Altria Group is currently generating about -0.26 of returns per unit of risk over similar time horizon. If you would invest  5,395  in Altria Group on September 25, 2024 and sell it today you would lose (272.00) from holding Altria Group or give up 5.04% of portfolio value over 90 days.

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

Philip Morris International  vs.  Altria Group

Philip Morris Intern

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Philip Morris may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Altria Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Altria may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Philip Morris and Altria

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

The idea behind Philip Morris International and Altria Group 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.