Correlation Between 3M and Simplify Volatility

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

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

Diversification Opportunities for 3M and Simplify Volatility

0.5

Correlation Coefficient

3M  Simplify Volatility

Very weak diversification

The 3 months correlation between 3M and Simplify is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Simplify Volatility Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Volatility 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 Simplify Volatility. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Volatility has no effect on the direction of 3M i.e., 3M and Simplify Volatility go up and down completely randomly.

Pair Corralation between 3M and Simplify Volatility

Considering the 90-day investment horizon 3M is expected to generate 1.37 times less return on investment than Simplify Volatility. But when comparing it to its historical volatility, 3M Company is 1.81 times less risky than Simplify Volatility. It trades about 0.05 of its potential returns per unit of risk. Simplify Volatility Premium is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,652  in Simplify Volatility Premium on May 2, 2025 and sell it today you would earn a total of  63.00  from holding Simplify Volatility Premium or generate 3.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

3M Company  vs.  Simplify Volatility Premium

3M Company

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, 3M is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Simplify Volatility

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Volatility Premium are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Simplify Volatility is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with 3M and Simplify Volatility

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

The idea behind 3M Company and Simplify Volatility Premium 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.