Correlation Between 3M and Emerita Resources

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

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

Diversification Opportunities for 3M and Emerita Resources

0.46

Correlation Coefficient

3M  Emerita Resources

Very weak diversification

The 3 months correlation between 3M and Emerita is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Emerita Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerita Resources Corp 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 Emerita Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerita Resources Corp has no effect on the direction of 3M i.e., 3M and Emerita Resources go up and down completely randomly.

Pair Corralation between 3M and Emerita Resources

Considering the 90-day investment horizon 3M is expected to generate 1.77 times less return on investment than Emerita Resources. But when comparing it to its historical volatility, 3M Company is 3.34 times less risky than Emerita Resources. It trades about 0.15 of its potential returns per unit of risk. Emerita Resources Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  81.00  in Emerita Resources Corp on December 27, 2024 and sell it today you would earn a total of  16.00  from holding Emerita Resources Corp or generate 19.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

3M Company  vs.  Emerita Resources Corp

3M Company

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, 3M displayed solid returns over the last few months and may actually be approaching a breakup point.

Emerita Resources Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Emerita Resources Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Emerita Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and Emerita Resources

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

The idea behind 3M Company and Emerita Resources Corp 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.