Correlation Between 3M and Vanguard ESG

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

Diversification Opportunities for 3M and Vanguard ESG

-0.38
  Correlation Coefficient

Very good diversification

The 3 months correlation between 3M and Vanguard is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Vanguard ESG Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard ESG Corporate 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 Vanguard ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard ESG Corporate has no effect on the direction of 3M i.e., 3M and Vanguard ESG go up and down completely randomly.

Pair Corralation between 3M and Vanguard ESG

Considering the 90-day investment horizon 3M Company is expected to generate 4.06 times more return on investment than Vanguard ESG. However, 3M is 4.06 times more volatile than Vanguard ESG Corporate. It trades about 0.09 of its potential returns per unit of risk. Vanguard ESG Corporate is currently generating about -0.29 per unit of risk. If you would invest  8,928  in 3M Company on January 22, 2024 and sell it today you would earn a total of  299.00  from holding 3M Company or generate 3.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  Vanguard ESG Corporate

 Performance 
       Timeline  
3M Company 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, 3M is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.
Vanguard ESG Corporate 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Vanguard ESG Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Vanguard ESG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

3M and Vanguard ESG Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and Vanguard ESG

The main advantage of trading using opposite 3M and Vanguard ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Vanguard ESG 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 Vanguard ESG will offset losses from the drop in Vanguard ESG's long position.
The idea behind 3M Company and Vanguard ESG Corporate 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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