Correlation Between Swire Pacific and 3M

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

By analyzing existing cross correlation between Swire Pacific Ltd and 3M Company, you can compare the effects of market volatilities on Swire Pacific and 3M 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 Swire Pacific with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swire Pacific and 3M.

Diversification Opportunities for Swire Pacific and 3M

-0.18

Correlation Coefficient

Swire Pacific  3M

Good diversification

The 3 months correlation between Swire and 3M is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Swire Pacific Ltd and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Swire Pacific 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 Swire Pacific Ltd are associated (or correlated) with 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of Swire Pacific i.e., Swire Pacific and 3M go up and down completely randomly.

Pair Corralation between Swire Pacific and 3M

Assuming the 90 days horizon Swire Pacific Ltd is expected to generate 2.61 times more return on investment than 3M. However, Swire Pacific is 2.61 times more volatile than 3M Company. It trades about 0.02 of its potential returns per unit of risk. 3M Company is currently generating about 0.04 per unit of risk. If you would invest  670.00  in Swire Pacific Ltd on September 1, 2024 and sell it today you would lose (2.00) from holding Swire Pacific Ltd or give up 0.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Swire Pacific Ltd  vs.  3M Company

Swire Pacific

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific Ltd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental drivers, Swire Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

3M Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, 3M is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Swire Pacific and 3M

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

The idea behind Swire Pacific Ltd and 3M Company 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.