Correlation Between 3M and 191216CU2

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Can any of the company-specific risk be diversified away by investing in both 3M and 191216CU2 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 191216CU2 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and COCA COLA CO, you can compare the effects of market volatilities on 3M and 191216CU2 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 191216CU2. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and 191216CU2.

Diversification Opportunities for 3M and 191216CU2

0.46
  Correlation Coefficient
 3M

Very weak diversification

The 3 months correlation between 3M and 191216CU2 is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and COCA COLA CO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COCA A CO 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 191216CU2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COCA A CO has no effect on the direction of 3M i.e., 3M and 191216CU2 go up and down completely randomly.

Pair Corralation between 3M and 191216CU2

Considering the 90-day investment horizon 3M Company is expected to generate 6.53 times more return on investment than 191216CU2. However, 3M is 6.53 times more volatile than COCA COLA CO. It trades about 0.11 of its potential returns per unit of risk. COCA COLA CO is currently generating about 0.03 per unit of risk. If you would invest  8,698  in 3M Company on November 9, 2024 and sell it today you would earn a total of  6,534  from holding 3M Company or generate 75.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  COCA COLA CO

 Performance 
       Timeline  
3M Company 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile primary indicators, 3M displayed solid returns over the last few months and may actually be approaching a breakup point.
COCA A CO 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in COCA COLA CO are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, 191216CU2 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

3M and 191216CU2 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and 191216CU2

The main advantage of trading using opposite 3M and 191216CU2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, 191216CU2 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 191216CU2 will offset losses from the drop in 191216CU2's long position.
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The idea behind 3M Company and COCA COLA CO 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.
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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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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