Correlation Between Motorcar Parts and 3M
Can any of the company-specific risk be diversified away by investing in both Motorcar Parts 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 Motorcar Parts and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Motorcar Parts of and 3M Company, you can compare the effects of market volatilities on Motorcar Parts 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 Motorcar Parts with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Motorcar Parts and 3M.
Diversification Opportunities for Motorcar Parts and 3M
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Motorcar and 3M is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Motorcar Parts of and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Motorcar Parts 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 Motorcar Parts of 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 Motorcar Parts i.e., Motorcar Parts and 3M go up and down completely randomly.
Pair Corralation between Motorcar Parts and 3M
Assuming the 90 days horizon Motorcar Parts of is expected to generate 3.36 times more return on investment than 3M. However, Motorcar Parts is 3.36 times more volatile than 3M Company. It trades about 0.38 of its potential returns per unit of risk. 3M Company is currently generating about 0.04 per unit of risk. If you would invest 555.00 in Motorcar Parts of on September 13, 2024 and sell it today you would earn a total of 195.00 from holding Motorcar Parts of or generate 35.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Motorcar Parts of vs. 3M Company
Performance |
| Timeline |
| Motorcar Parts |
| 3M Company |
Motorcar Parts and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Motorcar Parts and 3M
The main advantage of trading using opposite Motorcar Parts and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Motorcar Parts 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 Motorcar Parts of 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.| 3M vs. Motorcar Parts of | 3M vs. Cogent Communications Holdings | 3M vs. Zoom Video Communications | 3M vs. Carsales |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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