Correlation Between 3M and Brookfield Business

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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

-0.63
  Correlation Coefficient

Excellent diversification

The 3 months correlation between 3M and Brookfield is -0.63. 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 1.06 times more return on investment than Brookfield Business. However, 3M is 1.06 times more volatile than Brookfield Business Partners. It trades about 0.07 of its potential returns per unit of risk. Brookfield Business Partners is currently generating about -0.05 per unit of risk. If you would invest  8,802  in 3M Company on March 23, 2024 and sell it today you would earn a total of  1,364  from holding 3M Company or generate 15.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  Brookfield Business Partners

 Performance 
       Timeline  
3M Company 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
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 conflicting primary indicators, 3M displayed solid returns over the last few months and may actually be approaching a breakup point.
Brookfield Business 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Brookfield Business Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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.
The idea behind 3M Company and Brookfield Business Partners 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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