Correlation Between American Funds and 3M

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Can any of the company-specific risk be diversified away by investing in both American Funds 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 American Funds and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Developing and 3M Company, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and 3M.

Diversification Opportunities for American Funds and 3M

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between American and 3M is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Developing and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and American Funds 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 American Funds Developing 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 American Funds i.e., American Funds and 3M go up and down completely randomly.

Pair Corralation between American Funds and 3M

Assuming the 90 days horizon American Funds Developing is expected to generate 0.57 times more return on investment than 3M. However, American Funds Developing is 1.74 times less risky than 3M. It trades about -0.35 of its potential returns per unit of risk. 3M Company is currently generating about -0.21 per unit of risk. If you would invest  928.00  in American Funds Developing on July 1, 2022 and sell it today you would lose (74.00)  from holding American Funds Developing or give up 7.97% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

American Funds Developing  vs.  3M Company

 Performance (%) 
       Timeline  
American Funds Developing 
American Performance
0 of 100
Over the last 90 days American Funds Developing has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest sluggish performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

American Price Channel

3M Company 
3M Performance
0 of 100
Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's primary indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

3M Price Channel

American Funds and 3M Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Funds and 3M

The main advantage of trading using opposite American Funds and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.
American Funds vs. International Business Machines
The idea behind American Funds Developing 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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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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