Correlation Between 3M and 06050WFE0

Can any of the company-specific risk be diversified away by investing in both 3M and 06050WFE0 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 06050WFE0 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M Company and BANK AMER P, you can compare the effects of market volatilities on 3M and 06050WFE0 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 06050WFE0. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and 06050WFE0.

Diversification Opportunities for 3M and 06050WFE0

-0.43

Correlation Coefficient

3M  06050WFE0

Very good diversification

The 3 months correlation between 3M and 06050WFE0 is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and BANK AMER P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANK AMER P 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 06050WFE0. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANK AMER P has no effect on the direction of 3M i.e., 3M and 06050WFE0 go up and down completely randomly.

Pair Corralation between 3M and 06050WFE0

Considering the 90-day investment horizon 3M Company is expected to generate 0.92 times more return on investment than 06050WFE0. However, 3M Company is 1.09 times less risky than 06050WFE0. It trades about 0.04 of its potential returns per unit of risk. BANK AMER P is currently generating about 0.0 per unit of risk. If you would invest  9,326  in 3M Company on September 5, 2024 and sell it today you would earn a total of  3,789  from holding 3M Company or generate 40.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	27.47%
Values	Daily Returns

3M Company  vs.  BANK AMER P

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.

BANK AMER P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANK AMER P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for BANK AMER P investors.

Pair Trading with 3M and 06050WFE0

The main advantage of trading using opposite 3M and 06050WFE0 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, 06050WFE0 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 06050WFE0 will offset losses from the drop in 06050WFE0's long position.

The idea behind 3M Company and BANK AMER P 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.