Correlation Between Methode Electronics and Trimble

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

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

Diversification Opportunities for Methode Electronics and Trimble

0.27

Correlation Coefficient

Methode Electronics  Trimble

Modest diversification

The 3 months correlation between Methode and Trimble is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and Trimble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trimble 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 Trimble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trimble has no effect on the direction of Methode Electronics i.e., Methode Electronics and Trimble go up and down completely randomly.

Pair Corralation between Methode Electronics and Trimble

Assuming the 90 days trading horizon Methode Electronics is expected to under-perform the Trimble. In addition to that, Methode Electronics is 2.23 times more volatile than Trimble. It trades about -0.04 of its total potential returns per unit of risk. Trimble is currently generating about 0.06 per unit of volatility. If you would invest  4,494  in Trimble on December 3, 2024 and sell it today you would earn a total of  2,418  from holding Trimble or generate 53.81% 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.  Trimble

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Trimble

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trimble has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Trimble 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 Trimble

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

The idea behind Methode Electronics and Trimble 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.