Correlation Between 3M and Goldman Sachs

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

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

Diversification Opportunities for 3M and Goldman Sachs

0.85

Correlation Coefficient

3M  Goldman Sachs

Very poor diversification

The 3 months correlation between 3M and Goldman is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Goldman Sachs Physical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Physical and 3M 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 3M Company are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Physical has no effect on the direction of 3M i.e., 3M and Goldman Sachs go up and down completely randomly.

Pair Corralation between 3M and Goldman Sachs

Considering the 90-day investment horizon 3M Company is expected to under-perform the Goldman Sachs. In addition to that, 3M is 2.06 times more volatile than Goldman Sachs Physical. It trades about -0.01 of its total potential returns per unit of risk. Goldman Sachs Physical is currently generating about 0.05 per unit of volatility. If you would invest  1,865  in Goldman Sachs Physical on January 25, 2024 and sell it today you would earn a total of  435.00  from holding Goldman Sachs Physical or generate 23.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

3M Company  vs.  Goldman Sachs Physical

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.

Goldman Sachs Physical

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Physical are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Goldman Sachs unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and Goldman Sachs

The main advantage of trading using opposite 3M and Goldman Sachs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Goldman Sachs 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 Goldman Sachs will offset losses from the drop in Goldman Sachs' long position.

The idea behind 3M Company and Goldman Sachs Physical 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.