Correlation Between Methode Electronics and Collins Foods

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

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

Diversification Opportunities for Methode Electronics and Collins Foods

-0.62

Correlation Coefficient

Methode Electronics  Collins Foods

Excellent diversification

The 3 months correlation between Methode and Collins is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and Collins Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Collins Foods Limited 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 Collins Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Collins Foods Limited has no effect on the direction of Methode Electronics i.e., Methode Electronics and Collins Foods go up and down completely randomly.

Pair Corralation between Methode Electronics and Collins Foods

Assuming the 90 days trading horizon Methode Electronics is expected to generate 1.99 times more return on investment than Collins Foods. However, Methode Electronics is 1.99 times more volatile than Collins Foods Limited. It trades about 0.02 of its potential returns per unit of risk. Collins Foods Limited is currently generating about 0.02 per unit of risk. If you would invest  1,028  in Methode Electronics on December 4, 2024 and sell it today you would earn a total of  2.00  from holding Methode Electronics or generate 0.19% return on investment over 90 days.

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

Methode Electronics  vs.  Collins Foods Limited

Methode Electronics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Methode Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Collins Foods Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Collins Foods Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Collins Foods 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 Collins Foods

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

The idea behind Methode Electronics and Collins Foods Limited 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.