Correlation Between 3M and Azbil

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

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

Diversification Opportunities for 3M and Azbil

-0.33

Correlation Coefficient

3M  Azbil

Very good diversification

The 3 months correlation between 3M and Azbil is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Azbil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azbil 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 Azbil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azbil has no effect on the direction of 3M i.e., 3M and Azbil go up and down completely randomly.

Pair Corralation between 3M and Azbil

Assuming the 90 days horizon 3M Company is expected to generate 1.0 times more return on investment than Azbil. However, 3M Company is 1.0 times less risky than Azbil. It trades about 0.15 of its potential returns per unit of risk. Azbil is currently generating about -0.01 per unit of risk. If you would invest  12,365  in 3M Company on December 27, 2024 and sell it today you would earn a total of  1,819  from holding 3M Company or generate 14.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

3M Company  vs.  Azbil

3M Company

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, 3M reported solid returns over the last few months and may actually be approaching a breakup point.

Azbil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Azbil has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Azbil is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with 3M and Azbil

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

The idea behind 3M Company and Azbil 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.