Correlation Between 3M and Bank of America
Can any of the company-specific risk be diversified away by investing in both 3M and Bank of America 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 3M and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Verizon Communications, you can compare the effects of market volatilities on 3M and Bank of America 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 3M with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Bank of America.
Diversification Opportunities for 3M and Bank of America
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 3M and Bank is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and 3M 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 3M Company are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of 3M i.e., 3M and Bank of America go up and down completely randomly.
Pair Corralation between 3M and Bank of America
Assuming the 90 days horizon 3M is expected to generate 1.35 times less return on investment than Bank of America. In addition to that, 3M is 1.49 times more volatile than Verizon Communications. It trades about 0.03 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.05 per unit of volatility. If you would invest 3,012 in Verizon Communications on September 4, 2024 and sell it today you would earn a total of 1,169 from holding Verizon Communications or generate 38.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
3M Company vs. Verizon Communications
Performance |
| Timeline |
| 3M Company |
| Verizon Communications |
3M and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and Bank of America
The main advantage of trading using opposite 3M and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| 3M vs. UET United Electronic | 3M vs. United Breweries Co | 3M vs. STORE ELECTRONIC | 3M vs. Nucletron Electronic Aktiengesellschaft |
| Bank of America vs. Lifeway Foods | Bank of America vs. PARKEN Sport Entertainment | Bank of America vs. Flutter Entertainment PLC | Bank of America vs. REMEDY ENTERTAINMENT OYJ |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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