Correlation Between 3M and Real Estate

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

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

Diversification Opportunities for 3M and Real Estate

-0.44

Correlation Coefficient

3M  Real Estate

Very good diversification

The 3 months correlation between 3M and Real is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Real Estate Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Estate Series 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 Real Estate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Estate Series has no effect on the direction of 3M i.e., 3M and Real Estate go up and down completely randomly.

Pair Corralation between 3M and Real Estate

Considering the 90-day investment horizon 3M is expected to generate 4.01 times less return on investment than Real Estate. In addition to that, 3M is 2.39 times more volatile than Real Estate Series. It trades about 0.01 of its total potential returns per unit of risk. Real Estate Series is currently generating about 0.1 per unit of volatility. If you would invest  1,280  in Real Estate Series on September 5, 2024 and sell it today you would earn a total of  21.00  from holding Real Estate Series or generate 1.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	43.75%
Values	Daily Returns

3M Company  vs.  Real Estate Series

3M Company

Risk-Adjusted Performance

0 of 100

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.

Real Estate Series

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Real Estate Series has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Real Estate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with 3M and Real Estate

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

The idea behind 3M Company and Real Estate Series 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.