Correlation Between CTS and Methode Electronics

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

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

Diversification Opportunities for CTS and Methode Electronics

-0.2

Correlation Coefficient

CTS  Methode Electronics

Good diversification

The 3 months correlation between CTS and Methode is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding CTS Corp. and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and CTS 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 CTS Corporation 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 CTS i.e., CTS and Methode Electronics go up and down completely randomly.

Pair Corralation between CTS and Methode Electronics

Considering the 90-day investment horizon CTS Corporation is expected to generate 0.61 times more return on investment than Methode Electronics. However, CTS Corporation is 1.63 times less risky than Methode Electronics. It trades about 0.12 of its potential returns per unit of risk. Methode Electronics is currently generating about 0.06 per unit of risk. If you would invest  4,688  in CTS Corporation on August 31, 2024 and sell it today you would earn a total of  745.00  from holding CTS Corporation or generate 15.89% return on investment over 90 days.

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

CTS Corp.  vs.  Methode Electronics

CTS Corporation

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CTS Corporation are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CTS unveiled 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 fairly unfluctuating technical and fundamental indicators, Methode Electronics demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CTS and Methode Electronics

The main advantage of trading using opposite CTS and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CTS 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 CTS Corporation 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.