Correlation Between ABB and 3M
Can any of the company-specific risk be diversified away by investing in both ABB 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 ABB and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABB and 3M Company, you can compare the effects of market volatilities on ABB 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 ABB with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABB and 3M.
Diversification Opportunities for ABB and 3M
Poor diversification
The 3 months correlation between ABB and 3M is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding ABB and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and ABB 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 ABB 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 ABB i.e., ABB and 3M go up and down completely randomly.
Pair Corralation between ABB and 3M
Assuming the 90 days trading horizon ABB is expected to generate 0.84 times more return on investment than 3M. However, ABB is 1.19 times less risky than 3M. It trades about 0.08 of its potential returns per unit of risk. 3M Company is currently generating about 0.05 per unit of risk. If you would invest 3,126 in ABB on August 26, 2024 and sell it today you would earn a total of 2,174 from holding ABB or generate 69.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABB vs. 3M Company
Performance |
| Timeline |
| ABB |
| 3M Company |
ABB and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABB and 3M
The main advantage of trading using opposite ABB and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABB 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.| ABB vs. Superior Plus Corp | ABB vs. NMI Holdings | ABB vs. Origin Agritech | ABB vs. SIVERS SEMICONDUCTORS AB |
| 3M vs. EAGLE MATERIALS | 3M vs. Goodyear Tire Rubber | 3M vs. VULCAN MATERIALS | 3M vs. Martin Marietta Materials |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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