Correlation Between Philip Morris and Diageo PLC

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

Diversification Opportunities for Philip Morris and Diageo PLC

-0.35

Correlation Coefficient

Philip Morris  Diageo PLC

Very good diversification

The 3 months correlation between Philip and Diageo is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC 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 Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of Philip Morris i.e., Philip Morris and Diageo PLC go up and down completely randomly.

Pair Corralation between Philip Morris and Diageo PLC

Allowing for the 90-day total investment horizon Philip Morris International is expected to generate 1.07 times more return on investment than Diageo PLC. However, Philip Morris is 1.07 times more volatile than Diageo PLC ADR. It trades about -0.04 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.14 per unit of risk. If you would invest  17,190  in Philip Morris International on May 5, 2025 and sell it today you would lose (894.00) from holding Philip Morris International or give up 5.2% of portfolio value over 90 days.

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

Philip Morris International  vs.  Diageo PLC ADR

Philip Morris Intern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Philip Morris International has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Diageo PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in September 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Philip Morris and Diageo PLC

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

The idea behind Philip Morris International and Diageo PLC 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.