Correlation Between 3M and Brookfield Business
Can any of the company-specific risk be diversified away by investing in both 3M and Brookfield Business 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 Brookfield Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Brookfield Business Partners, you can compare the effects of market volatilities on 3M and Brookfield Business 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 Brookfield Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Brookfield Business.
Diversification Opportunities for 3M and Brookfield Business
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 3M and Brookfield is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Brookfield Business Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Business 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 Brookfield Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Business has no effect on the direction of 3M i.e., 3M and Brookfield Business go up and down completely randomly.
Pair Corralation between 3M and Brookfield Business
Considering the 90-day investment horizon 3M Company is expected to generate 1.32 times more return on investment than Brookfield Business. However, 3M is 1.32 times more volatile than Brookfield Business Partners. It trades about 0.17 of its potential returns per unit of risk. Brookfield Business Partners is currently generating about 0.09 per unit of risk. If you would invest 9,923 in 3M Company on June 2, 2024 and sell it today you would earn a total of 3,546 from holding 3M Company or generate 35.74% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
3M Company vs. Brookfield Business Partners
Performance |
Timeline |
3M Company |
Brookfield Business |
3M and Brookfield Business Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with 3M and Brookfield Business
The main advantage of trading using opposite 3M and Brookfield Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Brookfield Business 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 Brookfield Business will offset losses from the drop in Brookfield Business' long position.3M vs. Griffon | 3M vs. Brookfield Business Partners | 3M vs. Aquagold International | 3M vs. Morningstar Unconstrained Allocation |
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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 the Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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