Correlation Between 3M and FIDELITY

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

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

Diversification Opportunities for 3M and FIDELITY

-0.48

Correlation Coefficient

3M  FIDELITY

Very good diversification

The 3 months correlation between 3M and FIDELITY is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and FIDELITY NATL INFORMATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIDELITY NATL INFORMATION 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 FIDELITY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FIDELITY NATL INFORMATION has no effect on the direction of 3M i.e., 3M and FIDELITY go up and down completely randomly.

Pair Corralation between 3M and FIDELITY

Considering the 90-day investment horizon 3M is expected to generate 1.12 times less return on investment than FIDELITY. But when comparing it to its historical volatility, 3M Company is 1.35 times less risky than FIDELITY. It trades about 0.08 of its potential returns per unit of risk. FIDELITY NATL INFORMATION is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  8,002  in FIDELITY NATL INFORMATION on August 31, 2024 and sell it today you would earn a total of  1,198  from holding FIDELITY NATL INFORMATION or generate 14.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	25.94%
Values	Daily Returns

3M Company  vs.  FIDELITY NATL INFORMATION

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.

FIDELITY NATL INFORMATION

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FIDELITY NATL INFORMATION are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, FIDELITY may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with 3M and FIDELITY

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

The idea behind 3M Company and FIDELITY NATL INFORMATION 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 Stocks Directory module to find actively traded stocks across global markets.