Correlation Between 3M and Nabors Energy

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

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

Diversification Opportunities for 3M and Nabors Energy

-0.29

Correlation Coefficient

3M  Nabors Energy

Very good diversification

The 3 months correlation between 3M and Nabors is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Nabors Energy Transition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nabors Energy Transition 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 Nabors Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nabors Energy Transition has no effect on the direction of 3M i.e., 3M and Nabors Energy go up and down completely randomly.

Pair Corralation between 3M and Nabors Energy

Considering the 90-day investment horizon 3M Company is expected to generate 4.6 times more return on investment than Nabors Energy. However, 3M is 4.6 times more volatile than Nabors Energy Transition. It trades about 0.07 of its potential returns per unit of risk. Nabors Energy Transition is currently generating about 0.05 per unit of risk. If you would invest  7,936  in 3M Company on October 5, 2024 and sell it today you would earn a total of  5,034  from holding 3M Company or generate 63.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	20.0%
Values	Daily Returns

3M Company  vs.  Nabors Energy Transition

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 recent stock price disarray, may contribute to short-term losses for the investors.

Nabors Energy Transition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nabors Energy Transition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Nabors Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with 3M and Nabors Energy

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

The idea behind 3M Company and Nabors Energy Transition 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.