Correlation Between World Oil and 3M
Can any of the company-specific risk be diversified away by investing in both World Oil and 3M 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 World Oil and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between World Oil Group and 3M Company, you can compare the effects of market volatilities on World Oil and 3M 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 World Oil with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Oil and 3M.
Diversification Opportunities for World Oil and 3M
Poor diversification
The 3 months correlation between World and 3M is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding World Oil Group and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and World Oil 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 World Oil Group are associated (or correlated) with 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of World Oil i.e., World Oil and 3M go up and down completely randomly.
Pair Corralation between World Oil and 3M
Given the investment horizon of 90 days World Oil Group is expected to generate 8.21 times more return on investment than 3M. However, World Oil is 8.21 times more volatile than 3M Company. It trades about 0.07 of its potential returns per unit of risk. 3M Company is currently generating about 0.01 per unit of risk. If you would invest 2.00 in World Oil Group on September 13, 2024 and sell it today you would earn a total of 0.12 from holding World Oil Group or generate 6.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
World Oil Group vs. 3M Company
Performance |
| Timeline |
| World Oil Group |
| 3M Company |
World Oil and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with World Oil and 3M
The main advantage of trading using opposite World Oil and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Oil position performs unexpectedly, 3M 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 3M will offset losses from the drop in 3M's long position.| World Oil vs. Arca Continental SAB | World Oil vs. Becle SA de | World Oil vs. Aquagold International | World Oil vs. Morningstar Unconstrained Allocation |
| 3M vs. Vast Renewables Limited | 3M vs. 1847 Holdings LLC | 3M vs. Westport Fuel Systems | 3M vs. Falcons Beyond 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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