Correlation Between 3M and Controladora Vuela

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

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

Diversification Opportunities for 3M and Controladora Vuela

0.23

Correlation Coefficient

3M  Controladora Vuela

Modest diversification

The 3 months correlation between 3M and Controladora is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Controladora Vuela Compaa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Controladora Vuela Compaa 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 Controladora Vuela. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Controladora Vuela Compaa has no effect on the direction of 3M i.e., 3M and Controladora Vuela go up and down completely randomly.

Pair Corralation between 3M and Controladora Vuela

Assuming the 90 days trading horizon 3M Company is expected to under-perform the Controladora Vuela. But the stock apears to be less risky and, when comparing its historical volatility, 3M Company is 1.27 times less risky than Controladora Vuela. The stock trades about -0.04 of its potential returns per unit of risk. The Controladora Vuela Compaa is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,290  in Controladora Vuela Compaa on September 27, 2024 and sell it today you would earn a total of  275.00  from holding Controladora Vuela Compaa or generate 21.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

3M Company  vs.  Controladora Vuela Compaa

3M Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, 3M is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Controladora Vuela Compaa

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Controladora Vuela Compaa are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating essential indicators, Controladora Vuela sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and Controladora Vuela

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

The idea behind 3M Company and Controladora Vuela Compaa 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.