Correlation Between American Aires and Methode Electronics

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

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

Diversification Opportunities for American Aires and Methode Electronics

0.49

Correlation Coefficient

American Aires  Methode Electronics

Very weak diversification

The 3 months correlation between American and Methode is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding American Aires and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and American Aires 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 American Aires 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 American Aires i.e., American Aires and Methode Electronics go up and down completely randomly.

Pair Corralation between American Aires and Methode Electronics

Assuming the 90 days horizon American Aires is expected to generate 1.44 times more return on investment than Methode Electronics. However, American Aires is 1.44 times more volatile than Methode Electronics. It trades about 0.01 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.15 per unit of risk. If you would invest  15.00  in American Aires on December 27, 2024 and sell it today you would lose (2.00) from holding American Aires or give up 13.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

American Aires  vs.  Methode Electronics

American Aires

Risk-Adjusted Performance

Insignificant

Over the last 90 days American Aires has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, American Aires is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Methode Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Methode Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with American Aires and Methode Electronics

The main advantage of trading using opposite American Aires and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Aires 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 American Aires 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.