Correlation Between 3M and PIMCO RAFI

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

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

Diversification Opportunities for 3M and PIMCO RAFI

0.75

Correlation Coefficient

3M  PIMCO RAFI

Poor diversification

The 3 months correlation between 3M and PIMCO is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and PIMCO RAFI Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO RAFI Dynamic 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 PIMCO RAFI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO RAFI Dynamic has no effect on the direction of 3M i.e., 3M and PIMCO RAFI go up and down completely randomly.

Pair Corralation between 3M and PIMCO RAFI

Considering the 90-day investment horizon 3M Company is expected to generate 1.97 times more return on investment than PIMCO RAFI. However, 3M is 1.97 times more volatile than PIMCO RAFI Dynamic. It trades about 0.2 of its potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.25 per unit of risk. If you would invest  12,651  in 3M Company on December 19, 2024 and sell it today you would earn a total of  2,441  from holding 3M Company or generate 19.29% return on investment over 90 days.

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

3M Company  vs.  PIMCO RAFI Dynamic

3M Company

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 15 (%) 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.

PIMCO RAFI Dynamic

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, PIMCO RAFI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with 3M and PIMCO RAFI

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

The idea behind 3M Company and PIMCO RAFI Dynamic 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 CEOs Directory module to screen CEOs from public companies around the world.