Correlation Between Salesforce and Methode Electronics

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

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

Diversification Opportunities for Salesforce and Methode Electronics

0.9

Correlation Coefficient

Salesforce  Methode Electronics

Almost no diversification

The 3 months correlation between Salesforce and Methode is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and Salesforce 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 Salesforce 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 Salesforce i.e., Salesforce and Methode Electronics go up and down completely randomly.

Pair Corralation between Salesforce and Methode Electronics

Assuming the 90 days trading horizon Salesforce is expected to generate 0.43 times more return on investment than Methode Electronics. However, Salesforce is 2.34 times less risky than Methode Electronics. It trades about -0.15 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.19 per unit of risk. If you would invest  32,385  in Salesforce on December 26, 2024 and sell it today you would lose (5,785) from holding Salesforce or give up 17.86% of portfolio value over 90 days.

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

Salesforce  vs.  Methode Electronics

Salesforce

Risk-Adjusted Performance

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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 fragile 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 Salesforce and Methode Electronics

The main advantage of trading using opposite Salesforce and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce 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 Salesforce 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.