Correlation Between Methode Electronics and SIERRA METALS

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

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

Diversification Opportunities for Methode Electronics and SIERRA METALS

0.0

Correlation Coefficient

Methode Electronics  SIERRA METALS

Pay attention - limited upside

The 3 months correlation between Methode and SIERRA is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and SIERRA METALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIERRA METALS 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 SIERRA METALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIERRA METALS has no effect on the direction of Methode Electronics i.e., Methode Electronics and SIERRA METALS go up and down completely randomly.

Pair Corralation between Methode Electronics and SIERRA METALS

Assuming the 90 days trading horizon Methode Electronics is expected to generate 1.94 times less return on investment than SIERRA METALS. In addition to that, Methode Electronics is 2.21 times more volatile than SIERRA METALS. It trades about 0.11 of its total potential returns per unit of risk. SIERRA METALS is currently generating about 0.48 per unit of volatility. If you would invest  45.00  in SIERRA METALS on October 4, 2024 and sell it today you would earn a total of  11.00  from holding SIERRA METALS or generate 24.44% return on investment over 90 days.

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

Methode Electronics  vs.  SIERRA METALS

Methode Electronics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Methode Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

SIERRA METALS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SIERRA METALS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SIERRA METALS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Methode Electronics and SIERRA METALS

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

The idea behind Methode Electronics and SIERRA METALS 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.