Correlation Between 3M and 1st Capital

Can any of the company-specific risk be diversified away by investing in both 3M and 1st Capital 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 1st Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M Company and 1st Capital Bank, you can compare the effects of market volatilities on 3M and 1st Capital 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 1st Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and 1st Capital.

Diversification Opportunities for 3M and 1st Capital

-0.8

Correlation Coefficient

3M  1st Capital

Pay attention - limited upside

The 3 months correlation between 3M and 1st is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and 1st Capital Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1st Capital Bank 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 1st Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1st Capital Bank has no effect on the direction of 3M i.e., 3M and 1st Capital go up and down completely randomly.

Pair Corralation between 3M and 1st Capital

Considering the 90-day investment horizon 3M Company is expected to generate 2.62 times more return on investment than 1st Capital. However, 3M is 2.62 times more volatile than 1st Capital Bank. It trades about 0.29 of its potential returns per unit of risk. 1st Capital Bank is currently generating about -0.31 per unit of risk. If you would invest  7,744  in 3M Company on February 6, 2024 and sell it today you would earn a total of  1,971  from holding 3M Company or generate 25.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

3M Company  vs.  1st Capital Bank

3M Company

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile primary indicators, 3M displayed solid returns over the last few months and may actually be approaching a breakup point.

1st Capital Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 1st Capital Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with 3M and 1st Capital

The main advantage of trading using opposite 3M and 1st Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, 1st Capital 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 1st Capital will offset losses from the drop in 1st Capital's long position.

The idea behind 3M Company and 1st Capital Bank 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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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 the Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.