Correlation Between 3M and Pearson Plc

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

Diversification Opportunities for 3M and Pearson Plc

0.58
  Correlation Coefficient

Very weak diversification

The 3 months correlation between 3M and Pearson is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Pearson Plc Ord in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pearson Plc Ord 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 Pearson Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pearson Plc Ord has no effect on the direction of 3M i.e., 3M and Pearson Plc go up and down completely randomly.

Pair Corralation between 3M and Pearson Plc

Considering the 90-day investment horizon 3M Company is expected to under-perform the Pearson Plc. But the stock apears to be less risky and, when comparing its historical volatility, 3M Company is 1.44 times less risky than Pearson Plc. The stock trades about -0.04 of its potential returns per unit of risk. The Pearson Plc Ord is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,057  in Pearson Plc Ord on August 28, 2022 and sell it today you would earn a total of  34.00  from holding Pearson Plc Ord or generate 3.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.77%
ValuesDaily Returns

3M Company  vs.  Pearson Plc Ord

 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

Pearson Plc Ord 
Pearson Performance
13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Pearson Plc Ord are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Pearson Plc exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pearson Price Channel

3M and Pearson Plc Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and Pearson Plc

The main advantage of trading using opposite 3M and Pearson Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Pearson Plc 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 Pearson Plc will offset losses from the drop in Pearson Plc's long position.
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The idea behind 3M Company and Pearson Plc Ord 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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