Correlation Between RCABS and 3M
Can any of the company-specific risk be diversified away by investing in both RCABS 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 RCABS and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RCABS Inc and 3M Company, you can compare the effects of market volatilities on RCABS 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 RCABS with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of RCABS and 3M.
Diversification Opportunities for RCABS and 3M
Very weak diversification
The 3 months correlation between RCABS and 3M is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding RCABS Inc and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and RCABS 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 RCABS Inc 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 RCABS i.e., RCABS and 3M go up and down completely randomly.
Pair Corralation between RCABS and 3M
Given the investment horizon of 90 days RCABS Inc is expected to generate 5.66 times more return on investment than 3M. However, RCABS is 5.66 times more volatile than 3M Company. It trades about 0.05 of its potential returns per unit of risk. 3M Company is currently generating about 0.13 per unit of risk. If you would invest 0.08 in RCABS Inc on September 1, 2024 and sell it today you would earn a total of 0.00 from holding RCABS Inc or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
RCABS Inc vs. 3M Company
Performance |
| Timeline |
| RCABS Inc |
| 3M Company |
RCABS and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RCABS and 3M
The main advantage of trading using opposite RCABS and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RCABS 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 RCABS Inc 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. MDU Resources Group | 3M vs. Valmont Industries | 3M vs. Griffon | 3M vs. Compass Diversified Holdings |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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