Correlation Between 3M and Procter Gamble

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

Diversification Opportunities for 3M and Procter Gamble

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between 3M and Procter is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble 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 Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of 3M i.e., 3M and Procter Gamble go up and down completely randomly.

Pair Corralation between 3M and Procter Gamble

Considering the 90-day investment horizon 3M Company is expected to under-perform the Procter Gamble. In addition to that, 3M is 1.21 times more volatile than Procter Gamble. It trades about -0.04 of its total potential returns per unit of risk. Procter Gamble is currently generating about -0.01 per unit of volatility. If you would invest  13,878  in Procter Gamble on July 7, 2022 and sell it today you would lose (868.00)  from holding Procter Gamble or give up 6.25% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

3M Company  vs.  Procter Gamble

 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 inconsistent 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

Procter Gamble 
Procter Performance
0 of 100
Over the last 90 days Procter Gamble has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Procter Price Channel

3M and Procter Gamble Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and Procter Gamble

The main advantage of trading using opposite 3M and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Procter Gamble 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 Procter Gamble will offset losses from the drop in Procter Gamble's long position.
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The idea behind 3M Company and Procter Gamble 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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