Correlation Between INTER CARS and Methode Electronics

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

By analyzing existing cross correlation between INTER CARS SA and Methode Electronics, you can compare the effects of market volatilities on INTER CARS and Methode Electronics 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 INTER CARS with a short position of Methode Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of INTER CARS and Methode Electronics.

Diversification Opportunities for INTER CARS and Methode Electronics

0.72

Correlation Coefficient

INTER CARS  Methode Electronics

Poor diversification

The 3 months correlation between INTER and Methode is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding INTER CARS SA and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and INTER CARS 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 INTER CARS SA are associated (or correlated) with Methode Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methode Electronics has no effect on the direction of INTER CARS i.e., INTER CARS and Methode Electronics go up and down completely randomly.

Pair Corralation between INTER CARS and Methode Electronics

Assuming the 90 days horizon INTER CARS SA is expected to generate 0.55 times more return on investment than Methode Electronics. However, INTER CARS SA is 1.81 times less risky than Methode Electronics. It trades about 0.04 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.04 per unit of risk. If you would invest  9,337  in INTER CARS SA on October 23, 2024 and sell it today you would earn a total of  4,123  from holding INTER CARS SA or generate 44.16% return on investment over 90 days.

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

INTER CARS SA  vs.  Methode Electronics

INTER CARS SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in INTER CARS SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, INTER CARS reported solid returns over the last few months and may actually be approaching a breakup point.

Methode Electronics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Methode Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with INTER CARS and Methode Electronics

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

The idea behind INTER CARS SA and Methode Electronics 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..