Correlation Between Peabody Energy and 3M

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

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

Diversification Opportunities for Peabody Energy and 3M

-0.69

Correlation Coefficient

Peabody Energy  3M

Excellent diversification

The 3 months correlation between Peabody and 3M is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Peabody Energy Corp and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Peabody Energy 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 Peabody Energy Corp 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 Peabody Energy i.e., Peabody Energy and 3M go up and down completely randomly.

Pair Corralation between Peabody Energy and 3M

Considering the 90-day investment horizon Peabody Energy Corp is expected to under-perform the 3M. But the stock apears to be less risky and, when comparing its historical volatility, Peabody Energy Corp is 1.06 times less risky than 3M. The stock trades about -0.01 of its potential returns per unit of risk. The 3M Company is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  8,581  in 3M Company on January 26, 2024 and sell it today you would earn a total of  621.00  from holding 3M Company or generate 7.24% return on investment over 90 days.

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

Peabody Energy Corp  vs.  3M Company

Peabody Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peabody Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private 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 Peabody Energy and 3M

The main advantage of trading using opposite Peabody Energy and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Peabody Energy 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 Peabody Energy Corp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.