Correlation Between Methode Electronics and Yum China

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

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

Diversification Opportunities for Methode Electronics and Yum China

0.48

Correlation Coefficient

Methode Electronics  Yum China

Very weak diversification

The 3 months correlation between Methode and Yum is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and Yum China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum China Holdings and Methode Electronics 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 Methode Electronics are associated (or correlated) with Yum China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum China Holdings has no effect on the direction of Methode Electronics i.e., Methode Electronics and Yum China go up and down completely randomly.

Pair Corralation between Methode Electronics and Yum China

Assuming the 90 days trading horizon Methode Electronics is expected to under-perform the Yum China. In addition to that, Methode Electronics is 1.7 times more volatile than Yum China Holdings. It trades about -0.04 of its total potential returns per unit of risk. Yum China Holdings is currently generating about 0.0 per unit of volatility. If you would invest  5,484  in Yum China Holdings on October 5, 2024 and sell it today you would lose (899.00) from holding Yum China Holdings or give up 16.39% of portfolio value over 90 days.

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

Methode Electronics  vs.  Yum China Holdings

Methode Electronics

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Methode Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Methode Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Yum China Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Methode Electronics and Yum China

The main advantage of trading using opposite Methode Electronics and Yum China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Methode Electronics position performs unexpectedly, Yum China 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 Yum China will offset losses from the drop in Yum China's long position.

The idea behind Methode Electronics and Yum China Holdings 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.