Correlation Between 3M and AdvisorShares Hotel

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

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

Diversification Opportunities for 3M and AdvisorShares Hotel

-0.4

Correlation Coefficient

3M  AdvisorShares Hotel

Very good diversification

The 3 months correlation between 3M and AdvisorShares is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and AdvisorShares Hotel ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares Hotel ETF 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 AdvisorShares Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdvisorShares Hotel ETF has no effect on the direction of 3M i.e., 3M and AdvisorShares Hotel go up and down completely randomly.

Pair Corralation between 3M and AdvisorShares Hotel

Considering the 90-day investment horizon 3M Company is expected to under-perform the AdvisorShares Hotel. But the stock apears to be less risky and, when comparing its historical volatility, 3M Company is 1.35 times less risky than AdvisorShares Hotel. The stock trades about -0.03 of its potential returns per unit of risk. The AdvisorShares Hotel ETF is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  3,253  in AdvisorShares Hotel ETF on September 20, 2024 and sell it today you would earn a total of  147.01  from holding AdvisorShares Hotel ETF or generate 4.52% return on investment over 90 days.

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

3M Company  vs.  AdvisorShares Hotel ETF

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

AdvisorShares Hotel ETF

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AdvisorShares Hotel ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, AdvisorShares Hotel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with 3M and AdvisorShares Hotel

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

The idea behind 3M Company and AdvisorShares Hotel ETF 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.