Correlation Between 3M and FAST Acquisition

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Can any of the company-specific risk be diversified away by investing in both 3M and FAST Acquisition 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 3M and FAST Acquisition into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and FAST Acquisition II, you can compare the effects of market volatilities on 3M and FAST Acquisition 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 3M with a short position of FAST Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and FAST Acquisition.

Diversification Opportunities for 3M and FAST Acquisition

-0.34
  Correlation Coefficient

Very good diversification

The 3 months correlation between 3M and FAST is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and FAST Acquisition II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAST Acquisition and 3M 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 3M Company are associated (or correlated) with FAST Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAST Acquisition has no effect on the direction of 3M i.e., 3M and FAST Acquisition go up and down completely randomly.

Pair Corralation between 3M and FAST Acquisition

Considering the 90-day investment horizon 3M Company is expected to generate 6.63 times more return on investment than FAST Acquisition. However, 3M is 6.63 times more volatile than FAST Acquisition II. It trades about 0.06 of its potential returns per unit of risk. FAST Acquisition II is currently generating about 0.13 per unit of risk. If you would invest  8,360  in 3M Company on September 17, 2024 and sell it today you would earn a total of  4,632  from holding 3M Company or generate 55.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy22.37%
ValuesDaily Returns

3M Company  vs.  FAST Acquisition II

 Performance 
       Timeline  
3M Company 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, 3M is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.
FAST Acquisition 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days FAST Acquisition II has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, FAST Acquisition is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

3M and FAST Acquisition Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and FAST Acquisition

The main advantage of trading using opposite 3M and FAST Acquisition positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, FAST Acquisition 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 FAST Acquisition will offset losses from the drop in FAST Acquisition's long position.
The idea behind 3M Company and FAST Acquisition II 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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