Correlation Between 3M and Biostem Technologies

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

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

Diversification Opportunities for 3M and Biostem Technologies

-0.29

Correlation Coefficient

3M  Biostem Technologies

Very good diversification

The 3 months correlation between 3M and Biostem is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Biostem Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biostem Technologies 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 Biostem Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biostem Technologies has no effect on the direction of 3M i.e., 3M and Biostem Technologies go up and down completely randomly.

Pair Corralation between 3M and Biostem Technologies

Considering the 90-day investment horizon 3M Company is expected to generate 0.18 times more return on investment than Biostem Technologies. However, 3M Company is 5.65 times less risky than Biostem Technologies. It trades about 0.19 of its potential returns per unit of risk. Biostem Technologies is currently generating about 0.0 per unit of risk. If you would invest  12,977  in 3M Company on October 11, 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	Insignificant
Accuracy	95.24%
Values	Daily Returns

3M Company  vs.  Biostem Technologies

3M Company

Risk-Adjusted Performance

0 of 100

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.

Biostem Technologies

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Biostem Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Biostem Technologies displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and Biostem Technologies

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

The idea behind 3M Company and Biostem Technologies 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.