Correlation Between 3M and WisdomTree International
Can any of the company-specific risk be diversified away by investing in both 3M and WisdomTree International 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 WisdomTree International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and WisdomTree International SmallCap, you can compare the effects of market volatilities on 3M and WisdomTree International 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 WisdomTree International. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and WisdomTree International.
Diversification Opportunities for 3M and WisdomTree International
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 3M and WisdomTree is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and WisdomTree International Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International 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 WisdomTree International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree International has no effect on the direction of 3M i.e., 3M and WisdomTree International go up and down completely randomly.
Pair Corralation between 3M and WisdomTree International
Considering the 90-day investment horizon 3M Company is expected to generate 2.41 times more return on investment than WisdomTree International. However, 3M is 2.41 times more volatile than WisdomTree International SmallCap. It trades about 0.01 of its potential returns per unit of risk. WisdomTree International SmallCap is currently generating about -0.11 per unit of risk. If you would invest 12,723 in 3M Company on August 24, 2024 and sell it today you would earn a total of 9.00 from holding 3M Company or generate 0.07% 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. WisdomTree International Small
Performance |
| Timeline |
| 3M Company |
| WisdomTree International |
3M and WisdomTree International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and WisdomTree International
The main advantage of trading using opposite 3M and WisdomTree International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, WisdomTree International 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 WisdomTree International will offset losses from the drop in WisdomTree International'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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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