Correlation Between 3M and International Business

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Can any of the company-specific risk be diversified away by investing in both 3M and International 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 International 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 International Business Machines, you can compare the effects of market volatilities on 3M and International 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 International Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and International Business.

Diversification Opportunities for 3M and International Business

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between 3M and International is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of 3M i.e., 3M and International Business go up and down completely randomly.

Pair Corralation between 3M and International Business

Considering the 90-day investment horizon 3M Company is expected to under-perform the International Business. In addition to that, 3M is 1.05 times more volatile than International Business Machines. It trades about -0.04 of its total potential returns per unit of risk. International Business Machines is currently generating about 0.04 per unit of volatility. If you would invest  10,730  in International Business Machines on November 1, 2022 and sell it today you would earn a total of  2,753  from holding International Business Machines or generate 25.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  International Business Machine

 Performance (%) 
       Timeline  
3M Company 
3M Performance
0 of 100
Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's primary indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

3M Price Channel

International Business 
International Performance
0 of 100
Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady fundamental drivers, International Business is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

International Price Channel

3M and International Business Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and International Business

The main advantage of trading using opposite 3M and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, International 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 International Business will offset losses from the drop in International Business' long position.
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The idea behind 3M Company and International Business Machines 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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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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