Correlation Between 3M and Marubeni Corp

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

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

Diversification Opportunities for 3M and Marubeni Corp

0.26

Correlation Coefficient

3M  Marubeni Corp

Modest diversification

The 3 months correlation between 3M and Marubeni is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Marubeni Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marubeni Corp ADR 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 Marubeni Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marubeni Corp ADR has no effect on the direction of 3M i.e., 3M and Marubeni Corp go up and down completely randomly.

Pair Corralation between 3M and Marubeni Corp

Considering the 90-day investment horizon 3M Company is expected to generate 0.75 times more return on investment than Marubeni Corp. However, 3M Company is 1.33 times less risky than Marubeni Corp. It trades about 0.21 of its potential returns per unit of risk. Marubeni Corp ADR is currently generating about 0.03 per unit of risk. If you would invest  13,224  in 3M Company on December 1, 2024 and sell it today you would earn a total of  2,288  from holding 3M Company or generate 17.3% 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.  Marubeni Corp ADR

3M Company

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 16 (%) 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.

Marubeni Corp ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Marubeni Corp ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Marubeni Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with 3M and Marubeni Corp

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

The idea behind 3M Company and Marubeni Corp ADR 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.