Correlation Between 3M and First Trust

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

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

Diversification Opportunities for 3M and First Trust

0.84

Correlation Coefficient

3M  First Trust

Very poor diversification

The 3 months correlation between 3M and First is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and First Trust Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Large 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Large has no effect on the direction of 3M i.e., 3M and First Trust go up and down completely randomly.

Pair Corralation between 3M and First Trust

Considering the 90-day investment horizon 3M is expected to generate 1.57 times less return on investment than First Trust. In addition to that, 3M is 2.03 times more volatile than First Trust Large. It trades about 0.11 of its total potential returns per unit of risk. First Trust Large is currently generating about 0.34 per unit of volatility. If you would invest  13,292  in First Trust Large on April 30, 2025 and sell it today you would earn a total of  2,249  from holding First Trust Large or generate 16.92% return on investment over 90 days.

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

3M Company  vs.  First Trust Large

3M Company

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, 3M may actually be approaching a critical reversion point that can send shares even higher in August 2025.

First Trust Large

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Large are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, First Trust exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and First Trust

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

The idea behind 3M Company and First Trust Large 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 Transaction History module to view history of all your transactions and understand their impact on performance.