Correlation Between 3M and Goldman Sachs

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

Diversification Opportunities for 3M and Goldman Sachs

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between 3M and Goldman is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Goldman Sachs Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Group 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Group has no effect on the direction of 3M i.e., 3M and Goldman Sachs go up and down completely randomly.

Pair Corralation between 3M and Goldman Sachs

Considering the 90-day investment horizon 3M is expected to generate 1.59 times less return on investment than Goldman Sachs. But when comparing it to its historical volatility, 3M Company is 1.32 times less risky than Goldman Sachs. It trades about 0.21 of its potential returns per unit of risk. Goldman Sachs Group is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  29,007  in Goldman Sachs Group on May 16, 2022 and sell it today you would earn a total of  6,375  from holding Goldman Sachs Group or generate 21.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  Goldman Sachs Group

 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

Goldman Sachs Group 
Goldman Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Goldman Sachs reported solid returns over the last few months and may actually be approaching a breakup point.

Goldman Price Channel

3M and Goldman Sachs Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and Goldman Sachs

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

3M Company

Pair trading matchups for 3M

The idea behind 3M Company and Goldman Sachs Group 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.

Goldman Sachs Group

Pair trading matchups for Goldman Sachs

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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