Correlation Between 3M and First Trust
Can any of the company-specific risk be diversified away by investing in both 3M and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and First Trust India, you can compare the effects of market volatilities on 3M and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and First Trust.
Diversification Opportunities for 3M and First Trust
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between 3M and First is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and First Trust India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust India 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust India has no effect on the direction of 3M i.e., 3M and First Trust go up and down completely randomly.
Pair Corralation between 3M and First Trust
Considering the 90-day investment horizon 3M Company is expected to generate 2.65 times more return on investment than First Trust. However, 3M is 2.65 times more volatile than First Trust India. It trades about 0.04 of its potential returns per unit of risk. First Trust India is currently generating about 0.0 per unit of risk. If you would invest 9,039 in 3M Company on January 20, 2024 and sell it today you would earn a total of 109.00 from holding 3M Company or generate 1.21% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 95.45% |
Values | Daily Returns |
3M Company vs. First Trust India
Performance |
Timeline |
3M Company |
First Trust India |
3M and First Trust Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with 3M and First Trust
The main advantage of trading using opposite 3M and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.3M vs. MDU Resources Group | 3M vs. Compass Diversified Holdings | 3M vs. Brookfield Business Partners | 3M vs. Matthews International |
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 Stocks Directory module to find actively traded stocks across global markets.
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