Correlation Between 3M and General Electric

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

Diversification Opportunities for 3M and General Electric

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between 3M and General is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and General Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Electric 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 General Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Electric has no effect on the direction of 3M i.e., 3M and General Electric go up and down completely randomly.

Pair Corralation between 3M and General Electric

Considering the 90-day investment horizon 3M Company is expected to generate 1.0 times more return on investment than General Electric. However, 3M Company is 1.0 times less risky than General Electric. It trades about -0.24 of its potential returns per unit of risk. General Electric is currently generating about -0.39 per unit of risk. If you would invest  12,165  in 3M Company on July 4, 2022 and sell it today you would lose (1,115)  from holding 3M Company or give up 9.17% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  General Electric

 Performance (%) 
       Timeline  
3M Company 
3M Performance
0 of 100
Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's primary indicators remain relatively steady which may send shares a bit higher in November 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

3M Price Channel

General Electric 
General Performance
0 of 100
Over the last 90 days General Electric has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, General Electric is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

General Price Channel

3M and General Electric Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and General Electric

The main advantage of trading using opposite 3M and General Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, General Electric 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 General Electric will offset losses from the drop in General Electric's long position.
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The idea behind 3M Company and General Electric 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 Shere Portfolio module to track or share privately all of your investments from the convenience of any device.

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