Correlation Between 3M and Arconic

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

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

Diversification Opportunities for 3M and Arconic

-0.57

Correlation Coefficient

3M  Arconic

Excellent diversification

The 3 months correlation between 3M and Arconic is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Arconic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arconic 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 Arconic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arconic has no effect on the direction of 3M i.e., 3M and Arconic go up and down completely randomly.

Pair Corralation between 3M and Arconic

If you would invest  12,977  in 3M Company on October 12, 2024 and sell it today you would earn a total of  476.00  from holding 3M Company or generate 3.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	5.0%
Values	Daily Returns

3M Company  vs.  Arconic

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 very healthy primary indicators, 3M is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Arconic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arconic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Arconic is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with 3M and Arconic

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

The idea behind 3M Company and Arconic 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.