Correlation Between 3M and Strategy Shares

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

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

Diversification Opportunities for 3M and Strategy Shares

-0.55

Correlation Coefficient

3M  Strategy Shares

Excellent diversification

The 3 months correlation between 3M and Strategy is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Strategy Shares Gold Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategy Shares Gold 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 Strategy Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategy Shares Gold has no effect on the direction of 3M i.e., 3M and Strategy Shares go up and down completely randomly.

Pair Corralation between 3M and Strategy Shares

Considering the 90-day investment horizon 3M Company is expected to generate 1.86 times more return on investment than Strategy Shares. However, 3M is 1.86 times more volatile than Strategy Shares Gold Hedged. It trades about 0.04 of its potential returns per unit of risk. Strategy Shares Gold Hedged is currently generating about 0.06 per unit of risk. If you would invest  9,497  in 3M Company on August 26, 2024 and sell it today you would earn a total of  3,345  from holding 3M Company or generate 35.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	84.31%
Values	Daily Returns

3M Company  vs.  Strategy Shares Gold Hedged

3M Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, 3M is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Strategy Shares Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Strategy Shares Gold Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Strategy Shares is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with 3M and Strategy Shares

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

The idea behind 3M Company and Strategy Shares Gold Hedged 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.