Correlation Between 3M and ASM International

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

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

Diversification Opportunities for 3M and ASM International

0.26

Correlation Coefficient

3M  ASM International

Modest diversification

The 3 months correlation between 3M and ASM is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and ASM International NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASM International 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 ASM International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASM International has no effect on the direction of 3M i.e., 3M and ASM International go up and down completely randomly.

Pair Corralation between 3M and ASM International

Considering the 90-day investment horizon 3M Company is expected to under-perform the ASM International. But the stock apears to be less risky and, when comparing its historical volatility, 3M Company is 5.99 times less risky than ASM International. The stock trades about -0.11 of its potential returns per unit of risk. The ASM International NV is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  62,500  in ASM International NV on January 29, 2024 and sell it today you would earn a total of  4,400  from holding ASM International NV or generate 7.04% return on investment over 90 days.

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

3M Company  vs.  ASM International NV

3M Company

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 11 (%) 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.

ASM International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ASM International NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ASM International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and ASM International

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

The idea behind 3M Company and ASM International NV 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.