Correlation Between 3M and EBay

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

Diversification Opportunities for 3M and EBay

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between 3M and EBay is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and EBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EBay Inc 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 EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EBay Inc has no effect on the direction of 3M i.e., 3M and EBay go up and down completely randomly.

Pair Corralation between 3M and EBay

Considering the 90-day investment horizon 3M is expected to generate 2.43 times less return on investment than EBay. But when comparing it to its historical volatility, 3M Company is 1.8 times less risky than EBay. It trades about 0.11 of its potential returns per unit of risk. EBay Inc is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,037  in EBay Inc on September 10, 2022 and sell it today you would earn a total of  354.50  from holding EBay Inc or generate 8.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  EBay Inc

 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 latest stock price chaos, may contribute to medium-term losses for the stakeholders.

3M Price Channel

EBay Inc 
EBay Performance
0 of 100
Over the last 90 days EBay Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, EBay is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

EBay Price Channel

3M and EBay Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and EBay

The main advantage of trading using opposite 3M and EBay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, EBay 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 EBay will offset losses from the drop in EBay's long position.
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The idea behind 3M Company and EBay Inc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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