Correlation Between Methode Electronics and IBERDROLA ADR/1

Can any of the company-specific risk be diversified away by investing in both Methode Electronics and IBERDROLA ADR/1 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 IBERDROLA ADR/1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Methode Electronics and IBERDROLA ADR1 EO, you can compare the effects of market volatilities on Methode Electronics and IBERDROLA ADR/1 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 IBERDROLA ADR/1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Methode Electronics and IBERDROLA ADR/1.

Diversification Opportunities for Methode Electronics and IBERDROLA ADR/1

-0.39

Correlation Coefficient

Methode Electronics  IBERDROLA ADR/1

Very good diversification

The 3 months correlation between Methode and IBERDROLA is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and IBERDROLA ADR1 EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IBERDROLA ADR1 EO 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 IBERDROLA ADR/1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IBERDROLA ADR1 EO has no effect on the direction of Methode Electronics i.e., Methode Electronics and IBERDROLA ADR/1 go up and down completely randomly.

Pair Corralation between Methode Electronics and IBERDROLA ADR/1

Assuming the 90 days trading horizon Methode Electronics is expected to under-perform the IBERDROLA ADR/1. In addition to that, Methode Electronics is 2.56 times more volatile than IBERDROLA ADR1 EO. It trades about -0.04 of its total potential returns per unit of risk. IBERDROLA ADR1 EO is currently generating about 0.05 per unit of volatility. If you would invest  3,813  in IBERDROLA ADR1 EO on October 23, 2024 and sell it today you would earn a total of  1,437  from holding IBERDROLA ADR1 EO or generate 37.69% return on investment over 90 days.

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

Methode Electronics  vs.  IBERDROLA ADR1 EO

Methode Electronics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 8 (%) 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.

IBERDROLA ADR1 EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IBERDROLA ADR1 EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IBERDROLA ADR/1 is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Methode Electronics and IBERDROLA ADR/1

The main advantage of trading using opposite Methode Electronics and IBERDROLA ADR/1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Methode Electronics position performs unexpectedly, IBERDROLA ADR/1 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 IBERDROLA ADR/1 will offset losses from the drop in IBERDROLA ADR/1's long position.

The idea behind Methode Electronics and IBERDROLA ADR1 EO 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.