Correlation Between Methode Electronics and Carsales

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

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

Diversification Opportunities for Methode Electronics and Carsales

-0.01

Correlation Coefficient

Methode Electronics  Carsales

Good diversification

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

Pair Corralation between Methode Electronics and Carsales

Assuming the 90 days trading horizon Methode Electronics is expected to generate 3.28 times more return on investment than Carsales. However, Methode Electronics is 3.28 times more volatile than CarsalesCom. It trades about 0.09 of its potential returns per unit of risk. CarsalesCom is currently generating about -0.04 per unit of risk. If you would invest  976.00  in Methode Electronics on October 5, 2024 and sell it today you would earn a total of  184.00  from holding Methode Electronics or generate 18.85% 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.  CarsalesCom

Methode Electronics

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Methode Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Methode Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

CarsalesCom

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Methode Electronics and CarsalesCom 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.