Correlation Between Illinois Tool and 3M
Can any of the company-specific risk be diversified away by investing in both Illinois Tool 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 Illinois Tool and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Illinois Tool Works and 3M Company, you can compare the effects of market volatilities on Illinois Tool 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 Illinois Tool with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and 3M.
Diversification Opportunities for Illinois Tool and 3M
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Illinois and 3M is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Illinois Tool 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 Illinois Tool Works 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 Illinois Tool i.e., Illinois Tool and 3M go up and down completely randomly.
Pair Corralation between Illinois Tool and 3M
Assuming the 90 days horizon Illinois Tool is expected to generate 2.58 times less return on investment than 3M. But when comparing it to its historical volatility, Illinois Tool Works is 1.51 times less risky than 3M. It trades about 0.02 of its potential returns per unit of risk. 3M Company is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 12,383 in 3M Company on October 15, 2024 and sell it today you would earn a total of 385.00 from holding 3M Company or generate 3.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Illinois Tool Works vs. 3M Company
Performance |
| Timeline |
| Illinois Tool Works |
| 3M Company |
Illinois Tool and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Illinois Tool and 3M
The main advantage of trading using opposite Illinois Tool and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool 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.| Illinois Tool vs. CITY OFFICE REIT | Illinois Tool vs. GAMESTOP | Illinois Tool vs. CENTURIA OFFICE REIT | Illinois Tool vs. NURAN WIRELESS INC |
| 3M vs. Telecom Argentina SA | 3M vs. Calibre Mining Corp | 3M vs. Singapore Telecommunications Limited | 3M vs. ecotel communication ag |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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