Correlation Between Arthur J and 3M

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

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

Diversification Opportunities for Arthur J and 3M

0.13

Correlation Coefficient

Arthur J  3M

Average diversification

The 3 months correlation between Arthur and 3M is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Arthur J Gallagher and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Arthur J 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 Arthur J Gallagher 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 Arthur J i.e., Arthur J and 3M go up and down completely randomly.

Pair Corralation between Arthur J and 3M

Considering the 90-day investment horizon Arthur J Gallagher is expected to under-perform the 3M. But the stock apears to be less risky and, when comparing its historical volatility, Arthur J Gallagher is 1.8 times less risky than 3M. The stock trades about -0.14 of its potential returns per unit of risk. The 3M Company is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  8,766  in 3M Company on January 25, 2024 and sell it today you would earn a total of  534.00  from holding 3M Company or generate 6.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Arthur J Gallagher  vs.  3M Company

Arthur J Gallagher

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arthur J Gallagher has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, Arthur J is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

3M Company

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 13 (%) 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 Arthur J and 3M

The main advantage of trading using opposite Arthur J and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arthur J 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 Arthur J Gallagher 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.