Correlation Between WisdomTree India and 3M

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

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

Diversification Opportunities for WisdomTree India and 3M

0.05

Correlation Coefficient

WisdomTree India  3M

Significant diversification

The 3 months correlation between WisdomTree and 3M is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree India Earnings and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and WisdomTree India 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 WisdomTree India Earnings 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 WisdomTree India i.e., WisdomTree India and 3M go up and down completely randomly.

Pair Corralation between WisdomTree India and 3M

Considering the 90-day investment horizon WisdomTree India is expected to generate 1.91 times less return on investment than 3M. But when comparing it to its historical volatility, WisdomTree India Earnings is 3.01 times less risky than 3M. It trades about 0.32 of its potential returns per unit of risk. 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 Together
Strength	Insignificant
Accuracy	91.3%
Values	Daily Returns

WisdomTree India Earnings  vs.  3M Company

WisdomTree India Earnings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree India Earnings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, WisdomTree India may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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 WisdomTree India and 3M

The main advantage of trading using opposite WisdomTree India and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree India 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 WisdomTree India Earnings 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.