Correlation Between 3M and Micro Focus

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

Diversification Opportunities for 3M and Micro Focus

-0.75
  Correlation Coefficient

Pay attention - limited upside

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

Pair Corralation between 3M and Micro Focus

Considering the 90-day investment horizon 3M Company is expected to under-perform the Micro Focus. In addition to that, 3M is 1.38 times more volatile than Micro Focus Intl. It trades about -0.25 of its total potential returns per unit of risk. Micro Focus Intl is currently generating about -0.12 per unit of volatility. If you would invest  594.00  in Micro Focus Intl on July 1, 2022 and sell it today you would lose (22.00)  from holding Micro Focus Intl or give up 3.7% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  Micro Focus Intl

 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 latest weak performance, the Stock's primary indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

3M Price Channel

Micro Focus Intl 
Micro Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Micro Focus Intl are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Micro Focus displayed solid returns over the last few months and may actually be approaching a breakup point.

Micro Price Channel

3M and Micro Focus Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and Micro Focus

The main advantage of trading using opposite 3M and Micro Focus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Micro Focus 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 Micro Focus will offset losses from the drop in Micro Focus' long position.
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The idea behind 3M Company and Micro Focus Intl 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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