Correlation Between IXSE and 3M

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

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

Diversification Opportunities for IXSE and 3M

0.0

Correlation Coefficient

IXSE  3M

Pay attention - limited upside

The 3 months correlation between IXSE and 3M is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding IXSE and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and IXSE 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 IXSE 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 IXSE i.e., IXSE and 3M go up and down completely randomly.

Pair Corralation between IXSE and 3M

Given the investment horizon of 90 days IXSE is expected to under-perform the 3M. In addition to that, IXSE is 2.93 times more volatile than 3M Company. It trades about -0.05 of its total potential returns per unit of risk. 3M Company is currently generating about -0.01 per unit of volatility. If you would invest  11,113  in 3M Company on January 20, 2024 and sell it today you would lose (1,965) from holding 3M Company or give up 17.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	77.22%
Values	Daily Returns

IXSE  vs.  3M Company

IXSE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IXSE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IXSE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

3M Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, 3M is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IXSE and 3M

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

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 the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.