Correlation Between 3M and ACI Worldwide

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

Diversification Opportunities for 3M and ACI Worldwide

-0.15
  Correlation Coefficient

Good diversification

The 3 months correlation between 3M and ACI Worldwide is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and ACI Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACI Worldwide 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 ACI Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACI Worldwide has no effect on the direction of 3M i.e., 3M and ACI Worldwide go up and down completely randomly.

Pair Corralation between 3M and ACI Worldwide

Considering the 90-day investment horizon 3M Company is expected to generate 0.7 times more return on investment than ACI Worldwide. However, 3M Company is 1.42 times less risky than ACI Worldwide. It trades about -0.06 of its potential returns per unit of risk. ACI Worldwide is currently generating about -0.07 per unit of risk. If you would invest  16,748  in 3M Company on September 8, 2022 and sell it today you would lose (4,290)  from holding 3M Company or give up 25.61% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  ACI Worldwide

 Performance (%) 
       Timeline  
3M Company 
3M Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady primary indicators, 3M may actually be approaching a critical reversion point that can send shares even higher in January 2023.

3M Price Channel

ACI Worldwide 
ACI Worldwide Performance
0 of 100
Over the last 90 days ACI Worldwide has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, ACI Worldwide is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

ACI Worldwide Price Channel

3M and ACI Worldwide Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and ACI Worldwide

The main advantage of trading using opposite 3M and ACI Worldwide positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, ACI Worldwide 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 ACI Worldwide will offset losses from the drop in ACI Worldwide's long position.
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The idea behind 3M Company and ACI Worldwide 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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