Correlation Between 3M and Alibaba Group

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

Diversification Opportunities for 3M and Alibaba Group

-0.75
  Correlation Coefficient

Pay attention - limited upside

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

Pair Corralation between 3M and Alibaba Group

Considering the 90-day investment horizon 3M Company is expected to generate 0.41 times more return on investment than Alibaba Group. However, 3M Company is 2.41 times less risky than Alibaba Group. It trades about 0.2 of its potential returns per unit of risk. Alibaba Group Holding is currently generating about -0.05 per unit of risk. If you would invest  13,525  in 3M Company on May 15, 2022 and sell it today you would earn a total of  1,699  from holding 3M Company or generate 12.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  Alibaba Group Holding

 Performance (%) 
       Timeline  
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 new stock price chaos, may contribute to medium-term losses for the stakeholders.

3M Price Channel

Alibaba Group Holding 
Alibaba Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Alibaba Price Channel

3M and Alibaba Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and Alibaba Group

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

3M Company

Pair trading matchups for 3M

The idea behind 3M Company and Alibaba Group Holding 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.
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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