Correlation Between Air Lease and Methode Electronics

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

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

Diversification Opportunities for Air Lease and Methode Electronics

0.45

Correlation Coefficient

Air Lease  Methode Electronics

Very weak diversification

The 3 months correlation between Air and Methode is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and Air Lease 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 Air Lease 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 Air Lease i.e., Air Lease and Methode Electronics go up and down completely randomly.

Pair Corralation between Air Lease and Methode Electronics

Assuming the 90 days trading horizon Air Lease is expected to generate 0.44 times more return on investment than Methode Electronics. However, Air Lease is 2.28 times less risky than Methode Electronics. It trades about 0.03 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.04 per unit of risk. If you would invest  3,817  in Air Lease on October 3, 2024 and sell it today you would earn a total of  803.00  from holding Air Lease or generate 21.04% return on investment over 90 days.

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

Air Lease  vs.  Methode Electronics

Air Lease

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Air Lease reported solid returns over the last few months and may actually be approaching a breakup point.

Methode Electronics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 5 (%) 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 Air Lease and Methode Electronics

The main advantage of trading using opposite Air Lease and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Lease 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 Air Lease 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.