Correlation Between 3M and Brookfield Business

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

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

Diversification Opportunities for 3M and Brookfield Business

0.22

Correlation Coefficient

3M  Brookfield Business

Modest diversification

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

Pair Corralation between 3M and Brookfield Business

Considering the 90-day investment horizon 3M Company is expected to under-perform the Brookfield Business. But the stock apears to be less risky and, when comparing its historical volatility, 3M Company is 1.75 times less risky than Brookfield Business. The stock trades about -0.07 of its potential returns per unit of risk. The Brookfield Business Partners is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,503  in Brookfield Business Partners on September 12, 2024 and sell it today you would lose (19.00) from holding Brookfield Business Partners or give up 0.76% of portfolio value over 90 days.

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

3M Company  vs.  Brookfield Business Partners

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 current stock price disarray, may contribute to short-term losses for the investors.

Brookfield Business

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Business Partners are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, Brookfield Business unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and Brookfield Business

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

The idea behind 3M Company and Brookfield Business Partners 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..