Correlation Between 3M and Flexshares Global

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

Diversification Opportunities for 3M and Flexshares Global

0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between 3M and Flexshares is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Flexshares Global Broad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flexshares Global Broad 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 Flexshares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flexshares Global Broad has no effect on the direction of 3M i.e., 3M and Flexshares Global go up and down completely randomly.

Pair Corralation between 3M and Flexshares Global

Considering the 90-day investment horizon 3M Company is expected to under-perform the Flexshares Global. In addition to that, 3M is 1.59 times more volatile than Flexshares Global Broad. It trades about -0.03 of its total potential returns per unit of risk. Flexshares Global Broad is currently generating about 0.01 per unit of volatility. If you would invest  5,129  in Flexshares Global Broad on August 31, 2022 and sell it today you would earn a total of  25.00  from holding Flexshares Global Broad or generate 0.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.8%
ValuesDaily Returns

3M Company  vs.  Flexshares Global Broad

 Performance (%) 
       Timeline  
3M Company 
3M Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 1 (%) 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

Flexshares Global Broad 
Flexshares Performance
0 of 100
Over the last 90 days Flexshares Global Broad has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Flexshares Global is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Flexshares Price Channel

3M and Flexshares Global Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and Flexshares Global

The main advantage of trading using opposite 3M and Flexshares Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Flexshares Global 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 Flexshares Global will offset losses from the drop in Flexshares Global's long position.
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The idea behind 3M Company and Flexshares Global Broad 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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