Correlation Between 3M and Nextracker

Can any of the company-specific risk be diversified away by investing in both 3M and Nextracker 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 Nextracker into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M Company and Nextracker Class A, you can compare the effects of market volatilities on 3M and Nextracker 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 Nextracker. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Nextracker.

Diversification Opportunities for 3M and Nextracker

-0.22

Correlation Coefficient

3M  Nextracker

Very good diversification

The 3 months correlation between 3M and Nextracker is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Nextracker Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextracker Class A 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 Nextracker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextracker Class A has no effect on the direction of 3M i.e., 3M and Nextracker go up and down completely randomly.

Pair Corralation between 3M and Nextracker

Considering the 90-day investment horizon 3M is expected to generate 24.01 times less return on investment than Nextracker. But when comparing it to its historical volatility, 3M Company is 3.18 times less risky than Nextracker. It trades about 0.04 of its potential returns per unit of risk. Nextracker Class A is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  4,598  in Nextracker Class A on March 16, 2024 and sell it today you would earn a total of  1,455  from holding Nextracker Class A or generate 31.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

3M Company  vs.  Nextracker Class A

3M Company

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, 3M displayed solid returns over the last few months and may actually be approaching a breakup point.

Nextracker Class A

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nextracker Class A are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Nextracker is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with 3M and Nextracker

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

The idea behind 3M Company and Nextracker Class A 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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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.