Correlation Between 3M and IPath Series
Can any of the company-specific risk be diversified away by investing in both 3M and IPath Series 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 IPath Series into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and iPath Series B, you can compare the effects of market volatilities on 3M and IPath Series 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 IPath Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and IPath Series.
Diversification Opportunities for 3M and IPath Series
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between 3M and IPath is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and iPath Series B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iPath Series B 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 IPath Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iPath Series B has no effect on the direction of 3M i.e., 3M and IPath Series go up and down completely randomly.
Pair Corralation between 3M and IPath Series
Considering the 90-day investment horizon 3M is expected to generate 1.1 times less return on investment than IPath Series. But when comparing it to its historical volatility, 3M Company is 1.14 times less risky than IPath Series. It trades about 0.1 of its potential returns per unit of risk. iPath Series B is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 2,649 in iPath Series B on August 29, 2024 and sell it today you would earn a total of 96.00 from holding iPath Series B or generate 3.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
3M Company vs. iPath Series B
Performance |
| Timeline |
| 3M Company |
| iPath Series B |
3M and IPath Series Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and IPath Series
The main advantage of trading using opposite 3M and IPath Series positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, IPath Series 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 IPath Series will offset losses from the drop in IPath Series' long position.The idea behind 3M Company and iPath Series B pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| IPath Series vs. KraneShares Global Carbon | IPath Series vs. KraneShares European Carbon | IPath Series vs. KraneShares California Carbon | IPath Series vs. Breakwave Dry Bulk |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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