Correlation Between Bank of America and 3M
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and 3M Company, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and 3M.
Diversification Opportunities for Bank of America and 3M
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and 3M is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and 3M go up and down completely randomly.
Pair Corralation between Bank of America and 3M
Considering the 90-day investment horizon Bank of America is expected to generate 1.87 times less return on investment than 3M. But when comparing it to its historical volatility, Bank of America is 1.02 times less risky than 3M. It trades about 0.11 of its potential returns per unit of risk. 3M Company is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 260,346 in 3M Company on October 29, 2024 and sell it today you would earn a total of 51,654 from holding 3M Company or generate 19.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.36% |
| Values | Daily Returns |
Bank of America vs. 3M Company
Performance |
| Timeline |
| Bank of America |
| 3M Company |
Bank of America and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and 3M
The main advantage of trading using opposite Bank of America and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Toronto Dominion Bank | Bank of America vs. Royal Bank of | Bank of America vs. Nu Holdings | Bank of America vs. HSBC Holdings PLC |
| 3M vs. Honeywell International | 3M vs. Emerson Electric Co | 3M vs. iShares Global Timber | 3M vs. Vanguard World |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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