Correlation Between Applied Materials and 3M
Can any of the company-specific risk be diversified away by investing in both Applied Materials 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 Applied Materials and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and 3M Company, you can compare the effects of market volatilities on Applied Materials 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 Applied Materials with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and 3M.
Diversification Opportunities for Applied Materials and 3M
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Applied and 3M is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and 3M go up and down completely randomly.
Pair Corralation between Applied Materials and 3M
Assuming the 90 days trading horizon Applied Materials is expected to generate 1.1 times more return on investment than 3M. However, Applied Materials is 1.1 times more volatile than 3M Company. It trades about 0.06 of its potential returns per unit of risk. 3M Company is currently generating about 0.03 per unit of risk. If you would invest 211,654 in Applied Materials on October 14, 2024 and sell it today you would earn a total of 144,446 from holding Applied Materials or generate 68.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Applied Materials vs. 3M Company
Performance |
| Timeline |
| Applied Materials |
| 3M Company |
Applied Materials and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and 3M
The main advantage of trading using opposite Applied Materials and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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.| Applied Materials vs. Deutsche Bank Aktiengesellschaft | Applied Materials vs. Cognizant Technology Solutions | Applied Materials vs. Grupo Industrial Saltillo | Applied Materials vs. Southern Copper |
| 3M vs. Verizon Communications | 3M vs. Hoteles City Express | 3M vs. FIBRA Storage | 3M vs. Cognizant Technology Solutions |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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