Correlation Between Eurotech SpA and Methode Electronics

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

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

Diversification Opportunities for Eurotech SpA and Methode Electronics

0.58

Correlation Coefficient

Eurotech SpA  Methode Electronics

Very weak diversification

The 3 months correlation between Eurotech and Methode is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Eurotech SpA and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and Eurotech SpA 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 Eurotech SpA 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 Eurotech SpA i.e., Eurotech SpA and Methode Electronics go up and down completely randomly.

Pair Corralation between Eurotech SpA and Methode Electronics

Assuming the 90 days horizon Eurotech SpA is expected to generate 1.31 times more return on investment than Methode Electronics. However, Eurotech SpA is 1.31 times more volatile than Methode Electronics. It trades about 0.03 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.19 per unit of risk. If you would invest  72.00  in Eurotech SpA on December 30, 2024 and sell it today you would earn a total of  0.00  from holding Eurotech SpA or generate 0.0% return on investment over 90 days.

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

Eurotech SpA  vs.  Methode Electronics

Eurotech SpA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eurotech SpA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Eurotech SpA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Eurotech SpA and Methode Electronics

The main advantage of trading using opposite Eurotech SpA and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eurotech SpA 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 Eurotech SpA 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.