Correlation Between 3M and AUTONATION

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

By analyzing existing cross correlation between 3M Company and AUTONATION INC 38, you can compare the effects of market volatilities on 3M and AUTONATION 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 AUTONATION. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and AUTONATION.

Diversification Opportunities for 3M and AUTONATION

0.27

Correlation Coefficient

3M  AUTONATION

Modest diversification

The 3 months correlation between 3M and AUTONATION is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and AUTONATION INC 38 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AUTONATION INC 38 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 AUTONATION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AUTONATION INC 38 has no effect on the direction of 3M i.e., 3M and AUTONATION go up and down completely randomly.

Pair Corralation between 3M and AUTONATION

Considering the 90-day investment horizon 3M Company is expected to generate 2.17 times more return on investment than AUTONATION. However, 3M is 2.17 times more volatile than AUTONATION INC 38. It trades about -0.03 of its potential returns per unit of risk. AUTONATION INC 38 is currently generating about -0.1 per unit of risk. If you would invest  13,414  in 3M Company on October 5, 2024 and sell it today you would lose (444.00) from holding 3M Company or give up 3.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	88.71%
Values	Daily Returns

3M Company  vs.  AUTONATION INC 38

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.

AUTONATION INC 38

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AUTONATION INC 38 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AUTONATION 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 AUTONATION

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

The idea behind 3M Company and AUTONATION INC 38 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.