Correlation Between Philip Morris and SPS Commerce

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

Diversification Opportunities for Philip Morris and SPS Commerce

-0.17

Correlation Coefficient

Philip Morris  SPS Commerce

Good diversification

The 3 months correlation between Philip and SPS is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and SPS Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPS Commerce 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 SPS Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPS Commerce has no effect on the direction of Philip Morris i.e., Philip Morris and SPS Commerce go up and down completely randomly.

Pair Corralation between Philip Morris and SPS Commerce

Allowing for the 90-day total investment horizon Philip Morris International is expected to generate 0.59 times more return on investment than SPS Commerce. However, Philip Morris International is 1.69 times less risky than SPS Commerce. It trades about 0.24 of its potential returns per unit of risk. SPS Commerce is currently generating about 0.12 per unit of risk. If you would invest  14,927  in Philip Morris International on February 7, 2025 and sell it today you would earn a total of  2,609  from holding Philip Morris International or generate 17.48% return on investment over 90 days.

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

Philip Morris International  vs.  SPS Commerce

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.

SPS Commerce

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPS Commerce 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 basic indicators remain rather sound which may send shares a bit higher in June 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Philip Morris and SPS Commerce

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

The idea behind Philip Morris International and SPS Commerce 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.