Correlation Between Merger Fund and 3M

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

Diversification Opportunities for Merger Fund and 3M

-0.05
  Correlation Coefficient

Good diversification

The 3 months correlation between Merger and 3M is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Merger Fund and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Merger Fund 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 Merger Fund 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 Merger Fund i.e., Merger Fund and 3M go up and down completely randomly.

Pair Corralation between Merger Fund and 3M

Assuming the 90 days horizon Merger Fund is expected to under-perform the 3M. But the mutual fund apears to be less risky and, when comparing its historical volatility, Merger Fund is 8.46 times less risky than 3M. The mutual fund trades about -0.12 of its potential returns per unit of risk. The 3M Company is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  12,433  in 3M Company on August 31, 2022 and sell it today you would earn a total of  180.00  from holding 3M Company or generate 1.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merger Fund  vs.  3M Company

 Performance (%) 
       Timeline  
Merger Fund 
Merger Performance
0 of 100
Over the last 90 days Merger Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Merger Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merger Price Channel

3M Company 
3M Performance
2 of 100
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. Even with relatively steady primary indicators, 3M is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

3M Price Channel

Merger Fund and 3M Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merger Fund and 3M

The main advantage of trading using opposite Merger Fund and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merger Fund 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.
Merger Fund vs. Blackrock Large Cap
The idea behind Merger Fund 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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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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