Correlation Between 3M and Valmont Industries
Can any of the company-specific risk be diversified away by investing in both 3M and Valmont Industries 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 Valmont Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Valmont Industries, you can compare the effects of market volatilities on 3M and Valmont Industries 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 Valmont Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Valmont Industries.
Diversification Opportunities for 3M and Valmont Industries
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between 3M and Valmont is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Valmont Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valmont Industries 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 Valmont Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valmont Industries has no effect on the direction of 3M i.e., 3M and Valmont Industries go up and down completely randomly.
Pair Corralation between 3M and Valmont Industries
Considering the 90-day investment horizon 3M Company is expected to generate 1.0 times more return on investment than Valmont Industries. However, 3M is 1.0 times more volatile than Valmont Industries. It trades about 0.13 of its potential returns per unit of risk. Valmont Industries is currently generating about 0.11 per unit of risk. If you would invest 7,751 in 3M Company on August 29, 2024 and sell it today you would earn a total of 5,645 from holding 3M Company or generate 72.83% 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. Valmont Industries
Performance |
| Timeline |
| 3M Company |
| Valmont Industries |
3M and Valmont Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and Valmont Industries
The main advantage of trading using opposite 3M and Valmont Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Valmont Industries 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 Valmont Industries will offset losses from the drop in Valmont Industries' long position.The idea behind 3M Company and Valmont Industries 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.| Valmont Industries vs. Matthews International | Valmont Industries vs. Griffon | Valmont Industries vs. Brookfield Business Partners | Valmont Industries vs. MDU Resources Group |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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