Correlation Between 3M and MARSH

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

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

Diversification Opportunities for 3M and MARSH

-0.47

Correlation Coefficient

3M  MARSH

Very good diversification

The 3 months correlation between 3M and MARSH is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and MARSH MCLENNAN INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MARSH MCLENNAN INC 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 MARSH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MARSH MCLENNAN INC has no effect on the direction of 3M i.e., 3M and MARSH go up and down completely randomly.

Pair Corralation between 3M and MARSH

Considering the 90-day investment horizon 3M is expected to generate 1.57 times less return on investment than MARSH. But when comparing it to its historical volatility, 3M Company is 1.77 times less risky than MARSH. It trades about 0.29 of its potential returns per unit of risk. MARSH MCLENNAN INC is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  8,067  in MARSH MCLENNAN INC on February 12, 2024 and sell it today you would earn a total of  756.00  from holding MARSH MCLENNAN INC or generate 9.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	72.73%
Values	Daily Returns

3M Company  vs.  MARSH MCLENNAN INC

3M Company

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 18 (%) 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.

MARSH MCLENNAN INC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MARSH MCLENNAN INC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, MARSH may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with 3M and MARSH

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

The idea behind 3M Company and MARSH MCLENNAN INC 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.