Correlation Between 3M and Microsoft Corp

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Can any of the company-specific risk be diversified away by investing in both 3M and Microsoft Corp 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 Microsoft Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Microsoft Corp, you can compare the effects of market volatilities on 3M and Microsoft Corp 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 Microsoft Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Microsoft Corp.

Diversification Opportunities for 3M and Microsoft Corp

 0.52 Correlation Coefficient

Very weak diversification

The 3 months correlation between 3M and Microsoft is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp 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 Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of 3M i.e., 3M and Microsoft Corp go up and down completely randomly.

Pair Corralation between 3M and Microsoft Corp

Considering the 90-day investment horizon 3M is expected to generate 11.03 times less return on investment than Microsoft Corp. But when comparing it to its historical volatility, 3M Company is 1.31 times less risky than Microsoft Corp. It trades about 0.01 of its potential returns per unit of risk. Microsoft Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  20,977  in Microsoft Corp on May 13, 2022 and sell it today you would earn a total of  8,048  from holding Microsoft Corp or generate 38.37% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Weak Accuracy 100.0% Values Daily Returns

3M Company  vs.  Microsoft Corp

 Performance (%)
 Timeline
 3M Company Correlation Profile
3M Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady primary indicators, 3M is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

3M Price Channel

 Performance Backtest Predict
 Microsoft Corp Correlation Profile
Microsoft Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Microsoft Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Microsoft Price Channel

 Performance Backtest Predict

3M and Microsoft Corp Volatility Contrast

 Predicted Return Density
 Returns

Pair Trading with 3M and Microsoft Corp

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

3M Company

The idea behind 3M Company and Microsoft Corp 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.

Microsoft Corp

Pair trading matchups for Microsoft Corp

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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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