Correlation Between Dow Jones and 3M
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and 3M Company, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and 3M.
Diversification Opportunities for Dow Jones and 3M
Weak diversification
The 3 months correlation between Dow and 3M is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and 3M go up and down completely randomly.
Pair Corralation between Dow Jones and 3M
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.49 times more return on investment than 3M. However, Dow Jones Industrial is 2.06 times less risky than 3M. It trades about -0.21 of its potential returns per unit of risk. 3M Company is currently generating about -0.17 per unit of risk. If you would invest 4,471,358 in Dow Jones Industrial on November 28, 2024 and sell it today you would lose (128,046) from holding Dow Jones Industrial or give up 2.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Dow Jones Industrial vs. 3M Company
Performance |
| Timeline |
Dow Jones and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
3M Company
Pair trading matchups for 3M
Pair Trading with Dow Jones and 3M
The main advantage of trading using opposite Dow Jones and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Gladstone Investment | Dow Jones vs. BW Offshore Limited | Dow Jones vs. Fidus Investment Corp | Dow Jones vs. Aperture Health |
| 3M vs. Healthpeak Properties | 3M vs. Charter Communications | 3M vs. Sumitomo Mitsui Financial | 3M vs. Broadridge Financial 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 Stocks Directory module to find actively traded stocks across global markets.
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