Correlation Between 3M and Stone Ridge

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

By analyzing existing cross correlation between 3M Company and Stone Ridge 2058, you can compare the effects of market volatilities on 3M and Stone Ridge 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 Stone Ridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Stone Ridge.

Diversification Opportunities for 3M and Stone Ridge

0.37

Correlation Coefficient

3M  Stone Ridge

Weak diversification

The 3 months correlation between 3M and Stone is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Stone Ridge 2058 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stone Ridge 2058 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 Stone Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stone Ridge 2058 has no effect on the direction of 3M i.e., 3M and Stone Ridge go up and down completely randomly.

Pair Corralation between 3M and Stone Ridge

Considering the 90-day investment horizon 3M Company is expected to generate 2.6 times more return on investment than Stone Ridge. However, 3M is 2.6 times more volatile than Stone Ridge 2058. It trades about 0.18 of its potential returns per unit of risk. Stone Ridge 2058 is currently generating about 0.07 per unit of risk. If you would invest  13,054  in 3M Company on December 26, 2024 and sell it today you would earn a total of  2,296  from holding 3M Company or generate 17.59% return on investment over 90 days.

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

3M Company  vs.  Stone Ridge 2058

3M Company

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 14 (%) 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.

Stone Ridge 2058

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Stone Ridge 2058 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Stone Ridge is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with 3M and Stone Ridge

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

The idea behind 3M Company and Stone Ridge 2058 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.