Correlation Between 3M and MDU Resources

Can any of the company-specific risk be diversified away by investing in both 3M and MDU Resources 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 MDU Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M Company and MDU Resources Group, you can compare the effects of market volatilities on 3M and MDU Resources 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 MDU Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and MDU Resources.

Diversification Opportunities for 3M and MDU Resources

-0.14

Correlation Coefficient

3M  MDU Resources

Good diversification

The 3 months correlation between 3M and MDU is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and MDU Resources Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDU Resources Group 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 MDU Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDU Resources Group has no effect on the direction of 3M i.e., 3M and MDU Resources go up and down completely randomly.

Pair Corralation between 3M and MDU Resources

Considering the 90-day investment horizon 3M is expected to generate 12.09 times less return on investment than MDU Resources. But when comparing it to its historical volatility, 3M Company is 1.56 times less risky than MDU Resources. It trades about 0.04 of its potential returns per unit of risk. MDU Resources Group is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  1,389  in MDU Resources Group on September 2, 2024 and sell it today you would earn a total of  615.00  from holding MDU Resources Group or generate 44.28% return on investment over 90 days.

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

3M Company  vs.  MDU Resources Group

3M Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

MDU Resources Group

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MDU Resources Group are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal fundamental indicators, MDU Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and MDU Resources

The main advantage of trading using opposite 3M and MDU Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, MDU Resources 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 MDU Resources will offset losses from the drop in MDU Resources' long position.

The idea behind 3M Company and MDU Resources 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.

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 the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.