Correlation Between Oakmark Bond and 3M

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

Diversification Opportunities for Oakmark Bond and 3M

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Oakmark and 3M is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Oakmark Bond and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and Oakmark Bond 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 Oakmark Bond are associated (or correlated) with 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of Oakmark Bond i.e., Oakmark Bond and 3M go up and down completely randomly.

Pair Corralation between Oakmark Bond and 3M

Assuming the 90 days horizon Oakmark Bond is expected to generate 7.17 times less return on investment than 3M. But when comparing it to its historical volatility, Oakmark Bond is 4.28 times less risky than 3M. It trades about 0.25 of its potential returns per unit of risk. 3M Company is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  12,901  in 3M Company on May 10, 2022 and sell it today you would earn a total of  1,840  from holding 3M Company or generate 14.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Oakmark Bond  vs.  3M Company

 Performance (%) 
       Timeline  
Oakmark Bond 
Oakmark Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Oakmark Bond are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Oakmark Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Oakmark Price Channel

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 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

Oakmark Bond and 3M Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Oakmark Bond and 3M

The main advantage of trading using opposite Oakmark Bond and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oakmark Bond position performs unexpectedly, 3M 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 3M will offset losses from the drop in 3M's long position.

Oakmark Bond

Pair trading matchups for Oakmark Bond

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QK International vs. Oakmark Bond
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 Oakmark Bond 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. Oakmark Bond'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, Oakmark Bond'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 Oakmark Bond.
The idea behind Oakmark Bond and 3M Company 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.
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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