Correlation Between Methode Electronics and PT Bumi

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

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

Diversification Opportunities for Methode Electronics and PT Bumi

0.01

Correlation Coefficient

Methode Electronics  PT Bumi

Significant diversification

The 3 months correlation between Methode and PJM is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and PT Bumi Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bumi Resources 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 PT Bumi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bumi Resources has no effect on the direction of Methode Electronics i.e., Methode Electronics and PT Bumi go up and down completely randomly.

Pair Corralation between Methode Electronics and PT Bumi

Assuming the 90 days trading horizon Methode Electronics is expected to generate 1.59 times more return on investment than PT Bumi. However, Methode Electronics is 1.59 times more volatile than PT Bumi Resources. It trades about 0.26 of its potential returns per unit of risk. PT Bumi Resources is currently generating about -0.13 per unit of risk. If you would invest  895.00  in Methode Electronics on September 15, 2024 and sell it today you would earn a total of  305.00  from holding Methode Electronics or generate 34.08% return on investment over 90 days.

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

Methode Electronics  vs.  PT Bumi Resources

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.

PT Bumi Resources

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bumi Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Bumi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Methode Electronics and PT Bumi

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

The idea behind Methode Electronics and PT Bumi Resources 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.