Correlation Between Select Sector and 3M
Can any of the company-specific risk be diversified away by investing in both Select Sector 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 Select Sector and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Select Sector and 3M Company, you can compare the effects of market volatilities on Select Sector 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 Select Sector with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Sector and 3M.
Diversification Opportunities for Select Sector and 3M
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Select and 3M is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Select Sector 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 The Select Sector 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 Select Sector i.e., Select Sector and 3M go up and down completely randomly.
Pair Corralation between Select Sector and 3M
Assuming the 90 days trading horizon The Select Sector is expected to under-perform the 3M. But the etf apears to be less risky and, when comparing its historical volatility, The Select Sector is 1.02 times less risky than 3M. The etf trades about -0.11 of its potential returns per unit of risk. The 3M Company is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 259,000 in 3M Company on September 21, 2024 and sell it today you would lose (1,100) from holding 3M Company or give up 0.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
The Select Sector vs. 3M Company
Performance |
| Timeline |
| Select Sector |
| 3M Company |
Select Sector and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Sector and 3M
The main advantage of trading using opposite Select Sector and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector 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.| Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard Index Funds | Select Sector vs. SPDR SP 500 | Select Sector vs. Vanguard Bond Index |
| 3M vs. Emerson Electric Co | 3M vs. The Select Sector | 3M vs. Promotora y Operadora | 3M vs. iShares Global Timber |
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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