Correlation Between 3M and American Century

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Can any of the company-specific risk be diversified away by investing in both 3M and American Century 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 American Century into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and American Century One, you can compare the effects of market volatilities on 3M and American Century 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 American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and American Century.

Diversification Opportunities for 3M and American Century

0.75
  Correlation Coefficient

Poor diversification

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

Pair Corralation between 3M and American Century

Considering the 90-day investment horizon 3M is expected to generate 1.86 times less return on investment than American Century. In addition to that, 3M is 2.02 times more volatile than American Century One. It trades about 0.09 of its total potential returns per unit of risk. American Century One is currently generating about 0.35 per unit of volatility. If you would invest  880.00  in American Century One on September 5, 2022 and sell it today you would earn a total of  52.00  from holding American Century One or generate 5.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  American Century One

 Performance (%) 
       Timeline  
3M Company 
3M Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting primary indicators, 3M may actually be approaching a critical reversion point that can send shares even higher in January 2023.

3M Price Channel

American Century One 
American Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in American Century One are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, American Century is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Price Channel

3M and American Century Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and American Century

The main advantage of trading using opposite 3M and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, American Century 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 American Century will offset losses from the drop in American Century's long position.
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The idea behind 3M Company and American Century One 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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Check out your portfolio center. 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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