Correlation Between 3M and FEDERATED MDT

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

Diversification Opportunities for 3M and FEDERATED MDT

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between 3M and FEDERATED is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and FEDERATED MDT SMALL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FEDERATED MDT SMALL 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 FEDERATED MDT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FEDERATED MDT SMALL has no effect on the direction of 3M i.e., 3M and FEDERATED MDT go up and down completely randomly.

Pair Corralation between 3M and FEDERATED MDT

If you would invest  12,433  in 3M Company on September 1, 2022 and sell it today you would earn a total of  164.00  from holding 3M Company or generate 1.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy4.55%
ValuesDaily Returns

3M Company  vs.  FEDERATED MDT SMALL

 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 latest stock price chaos, may contribute to medium-term losses for the stakeholders.

3M Price Channel

FEDERATED MDT SMALL 
FEDERATED Performance
0 of 100
Over the last 90 days FEDERATED MDT SMALL has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, FEDERATED MDT is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

3M and FEDERATED MDT Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and FEDERATED MDT

The main advantage of trading using opposite 3M and FEDERATED MDT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, FEDERATED MDT 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 FEDERATED MDT will offset losses from the drop in FEDERATED MDT's long position.
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The idea behind 3M Company and FEDERATED MDT SMALL 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against FEDERATED MDT as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. FEDERATED MDT's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, FEDERATED MDT's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to FEDERATED MDT SMALL.
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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