Correlation Between 3M and IShares Environmental
Can any of the company-specific risk be diversified away by investing in both 3M and IShares Environmental 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 IShares Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and iShares Environmental Infrastructure, you can compare the effects of market volatilities on 3M and IShares Environmental 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 IShares Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and IShares Environmental.
Diversification Opportunities for 3M and IShares Environmental
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 3M and IShares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and iShares Environmental Infrastr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Environmental 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 IShares Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Environmental has no effect on the direction of 3M i.e., 3M and IShares Environmental go up and down completely randomly.
Pair Corralation between 3M and IShares Environmental
Considering the 90-day investment horizon 3M Company is expected to generate 2.1 times more return on investment than IShares Environmental. However, 3M is 2.1 times more volatile than iShares Environmental Infrastructure. It trades about 0.2 of its potential returns per unit of risk. iShares Environmental Infrastructure is currently generating about 0.11 per unit of risk. If you would invest 12,518 in 3M Company on September 3, 2024 and sell it today you would earn a total of 835.00 from holding 3M Company or generate 6.67% 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. iShares Environmental Infrastr
Performance |
| Timeline |
| 3M Company |
| iShares Environmental |
3M and IShares Environmental Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and IShares Environmental
The main advantage of trading using opposite 3M and IShares Environmental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, IShares Environmental 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 IShares Environmental will offset losses from the drop in IShares Environmental's long position.| 3M vs. MDU Resources Group | 3M vs. Valmont Industries | 3M vs. Griffon | 3M vs. Compass Diversified Holdings |
| IShares Environmental vs. Global X Infrastructure | IShares Environmental vs. FlexShares STOXX Global | IShares Environmental vs. Invesco Dynamic Leisure | IShares Environmental vs. SPDR SP Global |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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