Correlation Between 3M and Adobe Systems

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

Diversification Opportunities for 3M and Adobe Systems

0.57
  Correlation Coefficient

Very weak diversification

The 3 months correlation between 3M and Adobe is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Adobe Systems Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems Incorp 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 Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems Incorp has no effect on the direction of 3M i.e., 3M and Adobe Systems go up and down completely randomly.

Pair Corralation between 3M and Adobe Systems

Considering the 90-day investment horizon 3M Company is expected to generate 0.61 times more return on investment than Adobe Systems. However, 3M Company is 1.63 times less risky than Adobe Systems. It trades about -0.03 of its potential returns per unit of risk. Adobe Systems Incorporated is currently generating about -0.02 per unit of risk. If you would invest  16,425  in 3M Company on September 8, 2022 and sell it today you would lose (3,967)  from holding 3M Company or give up 24.15% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  Adobe Systems Incorporated

 Performance (%) 
       Timeline  
3M Company 
3M Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 5 (%) 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

Adobe Systems Incorp 
Adobe Performance
0 of 100
Over the last 90 days Adobe Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Adobe Price Channel

3M and Adobe Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and Adobe Systems

The main advantage of trading using opposite 3M and Adobe Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Adobe Systems 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 Adobe Systems will offset losses from the drop in Adobe Systems' long position.
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The idea behind 3M Company and Adobe Systems Incorporated 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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