Correlation Between Methode Electronics and Universal Entertainment

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

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

Diversification Opportunities for Methode Electronics and Universal Entertainment

0.2

Correlation Coefficient

Methode Electronics  Universal Entertainment

Modest diversification

The 3 months correlation between Methode and Universal is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and Universal Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Entertainment 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 Universal Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Entertainment has no effect on the direction of Methode Electronics i.e., Methode Electronics and Universal Entertainment go up and down completely randomly.

Pair Corralation between Methode Electronics and Universal Entertainment

Assuming the 90 days trading horizon Methode Electronics is expected to generate 1.08 times more return on investment than Universal Entertainment. However, Methode Electronics is 1.08 times more volatile than Universal Entertainment. It trades about 0.05 of its potential returns per unit of risk. Universal Entertainment is currently generating about -0.09 per unit of risk. If you would invest  912.00  in Methode Electronics on September 2, 2024 and sell it today you would earn a total of  83.00  from holding Methode Electronics or generate 9.1% return on investment over 90 days.

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

Methode Electronics  vs.  Universal Entertainment

Methode Electronics

Risk-Adjusted Performance

4 of 100

Insignificant

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

Universal Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Methode Electronics and Universal Entertainment

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

The idea behind Methode Electronics and Universal Entertainment 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.