Correlation Between ProShares and 3M

Can any of the company-specific risk be diversified away by investing in both ProShares 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 ProShares and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ProShares SP MidCap and 3M Company, you can compare the effects of market volatilities on ProShares 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 ProShares with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and 3M.

Diversification Opportunities for ProShares and 3M

0.75

Correlation Coefficient

ProShares  3M

Poor diversification

The 3 months correlation between ProShares and 3M is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP MidCap and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and ProShares 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 ProShares SP MidCap 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 ProShares i.e., ProShares and 3M go up and down completely randomly.

Pair Corralation between ProShares and 3M

Given the investment horizon of 90 days ProShares SP MidCap is expected to generate 0.82 times more return on investment than 3M. However, ProShares SP MidCap is 1.22 times less risky than 3M. It trades about -0.13 of its potential returns per unit of risk. 3M Company is currently generating about -0.11 per unit of risk. If you would invest  7,793  in ProShares SP MidCap on January 30, 2024 and sell it today you would lose (173.00) from holding ProShares SP MidCap or give up 2.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

ProShares SP MidCap  vs.  3M Company

ProShares SP MidCap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP MidCap are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, ProShares is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

3M Company

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, 3M displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares and 3M

The main advantage of trading using opposite ProShares and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares 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.

The idea behind ProShares SP MidCap and 3M Company 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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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.