Correlation Between Nike and Philip Morris

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Can any of the company-specific risk be diversified away by investing in both Nike and Philip Morris 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 Nike and Philip Morris into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nike Inc and Philip Morris International, you can compare the effects of market volatilities on Nike and Philip Morris 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 Nike with a short position of Philip Morris. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and Philip Morris.

Diversification Opportunities for Nike and Philip Morris

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Nike and Philip is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Philip Morris International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris Intern and Nike 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 Nike Inc are associated (or correlated) with Philip Morris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philip Morris Intern has no effect on the direction of Nike i.e., Nike and Philip Morris go up and down completely randomly.

Pair Corralation between Nike and Philip Morris

Considering the 90-day investment horizon Nike Inc is expected to generate 1.7 times more return on investment than Philip Morris. However, Nike is 1.7 times more volatile than Philip Morris International. It trades about 0.09 of its potential returns per unit of risk. Philip Morris International is currently generating about 0.05 per unit of risk. If you would invest  10,712  in Nike Inc on May 17, 2022 and sell it today you would earn a total of  880.00  from holding Nike Inc or generate 8.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Nike Inc  vs.  Philip Morris International

 Performance (%) 
       Timeline  
Nike Inc 
Nike Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Nike Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking signals, Nike is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nike Price Channel

Philip Morris Intern 
Philip Performance
0 of 100
Over the last 90 days Philip Morris International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady primary indicators, Philip Morris is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Philip Price Channel

Nike and Philip Morris Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nike and Philip Morris

The main advantage of trading using opposite Nike and Philip Morris positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike position performs unexpectedly, Philip Morris 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 Philip Morris will offset losses from the drop in Philip Morris' long position.
The idea behind Nike Inc and Philip Morris International 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.
Check out your portfolio center. 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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