Correlation Between 3M and ALPS

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

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

Diversification Opportunities for 3M and ALPS

-0.35

Correlation Coefficient

3M  ALPS

Very good diversification

The 3 months correlation between 3M and ALPS is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and ALPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS 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 ALPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS has no effect on the direction of 3M i.e., 3M and ALPS go up and down completely randomly.

Pair Corralation between 3M and ALPS

Considering the 90-day investment horizon 3M Company is expected to generate 1.85 times more return on investment than ALPS. However, 3M is 1.85 times more volatile than ALPS. It trades about 0.1 of its potential returns per unit of risk. ALPS is currently generating about 0.07 per unit of risk. If you would invest  7,844  in 3M Company on September 21, 2024 and sell it today you would earn a total of  4,869  from holding 3M Company or generate 62.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	84.76%
Values	Daily Returns

3M Company  vs.  ALPS

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.

ALPS

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ALPS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, ALPS showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and ALPS

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

The idea behind 3M Company and ALPS 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.