Correlation Between 3M and Oceanic Iron

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

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

Diversification Opportunities for 3M and Oceanic Iron

-0.51

Correlation Coefficient

3M  Oceanic Iron

Excellent diversification

The 3 months correlation between 3M and Oceanic is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Oceanic Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oceanic Iron Ore 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 Oceanic Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oceanic Iron Ore has no effect on the direction of 3M i.e., 3M and Oceanic Iron go up and down completely randomly.

Pair Corralation between 3M and Oceanic Iron

Considering the 90-day investment horizon 3M is expected to generate 10.37 times less return on investment than Oceanic Iron. But when comparing it to its historical volatility, 3M Company is 7.32 times less risky than Oceanic Iron. It trades about 0.15 of its potential returns per unit of risk. Oceanic Iron Ore is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Oceanic Iron Ore on February 1, 2024 and sell it today you would earn a total of  2.00  from holding Oceanic Iron Ore or generate 50.0% return on investment over 90 days.

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

3M Company  vs.  Oceanic Iron Ore

3M Company

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, 3M displayed solid returns over the last few months and may actually be approaching a breakup point.

Oceanic Iron Ore

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Oceanic Iron Ore are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Oceanic Iron reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and Oceanic Iron

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

The idea behind 3M Company and Oceanic Iron Ore 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 the Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.