Correlation Between Small Cap and 3M
Can any of the company-specific risk be diversified away by investing in both Small Cap 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 Small Cap and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and 3M Company, you can compare the effects of market volatilities on Small Cap 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 Small Cap with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and 3M.
Diversification Opportunities for Small Cap and 3M
Average diversification
The 3 months correlation between Small and 3M is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Small Cap 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 Small Cap Core 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 Small Cap i.e., Small Cap and 3M go up and down completely randomly.
Pair Corralation between Small Cap and 3M
Assuming the 90 days horizon Small Cap is expected to generate 3.69 times less return on investment than 3M. But when comparing it to its historical volatility, Small Cap Core is 1.7 times less risky than 3M. It trades about 0.06 of its potential returns per unit of risk. 3M Company is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 7,568 in 3M Company on August 27, 2024 and sell it today you would earn a total of 5,274 from holding 3M Company or generate 69.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. 3M Company
Performance |
| Timeline |
| Small Cap Core |
| 3M Company |
Small Cap and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and 3M
The main advantage of trading using opposite Small Cap and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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.| Small Cap vs. Pace High Yield | Small Cap vs. Needham Aggressive Growth | Small Cap vs. Metropolitan West High | Small Cap vs. Pioneer High Income |
| 3M vs. Vast Renewables Limited | 3M vs. 1847 Holdings LLC | 3M vs. Westport Fuel Systems | 3M vs. Brookfield Business Partners |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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