Correlation Between PayPal Holdings and 3M

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

By analyzing existing cross correlation between PayPal Holdings and 3M Company, you can compare the effects of market volatilities on PayPal Holdings and 3M 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 PayPal Holdings with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of PayPal Holdings and 3M.

Diversification Opportunities for PayPal Holdings and 3M

-0.15

Correlation Coefficient

PayPal Holdings  3M

Good diversification

The 3 months correlation between PayPal and 3M is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and PayPal Holdings 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 PayPal Holdings are associated (or correlated) with 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of PayPal Holdings i.e., PayPal Holdings and 3M go up and down completely randomly.

Pair Corralation between PayPal Holdings and 3M

Given the investment horizon of 90 days PayPal Holdings is expected to generate 1.33 times more return on investment than 3M. However, PayPal Holdings is 1.33 times more volatile than 3M Company. It trades about 0.21 of its potential returns per unit of risk. 3M Company is currently generating about -0.02 per unit of risk. If you would invest  7,010  in PayPal Holdings on September 13, 2024 and sell it today you would earn a total of  1,930  from holding PayPal Holdings or generate 27.53% return on investment over 90 days.

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

PayPal Holdings  vs.  3M Company

PayPal Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PayPal Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, PayPal Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

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 latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with PayPal Holdings and 3M

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

The idea behind PayPal Holdings and 3M Company 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.