Correlation Between 3M and RCABS
Can any of the company-specific risk be diversified away by investing in both 3M and RCABS 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 RCABS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and RCABS Inc, you can compare the effects of market volatilities on 3M and RCABS 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 RCABS. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and RCABS.
Diversification Opportunities for 3M and RCABS
Very weak diversification
The 3 months correlation between 3M and RCABS is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and RCABS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCABS Inc 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 RCABS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCABS Inc has no effect on the direction of 3M i.e., 3M and RCABS go up and down completely randomly.
Pair Corralation between 3M and RCABS
Considering the 90-day investment horizon 3M is expected to generate 1.96 times less return on investment than RCABS. But when comparing it to its historical volatility, 3M Company is 5.66 times less risky than RCABS. It trades about 0.13 of its potential returns per unit of risk. RCABS Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. 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 |
3M Company vs. RCABS Inc
Performance |
| Timeline |
| 3M Company |
| RCABS Inc |
3M and RCABS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and RCABS
The main advantage of trading using opposite 3M and RCABS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, RCABS 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 RCABS will offset losses from the drop in RCABS's long position.| 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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