Correlation Between Methode Electronics and WATER WAYS

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

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

Diversification Opportunities for Methode Electronics and WATER WAYS

0.41

Correlation Coefficient

Methode Electronics  WATER WAYS

Very weak diversification

The 3 months correlation between Methode and WATER is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and WATER WAYS TECHS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WATER WAYS TECHS 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 WATER WAYS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WATER WAYS TECHS has no effect on the direction of Methode Electronics i.e., Methode Electronics and WATER WAYS go up and down completely randomly.

Pair Corralation between Methode Electronics and WATER WAYS

Assuming the 90 days trading horizon Methode Electronics is expected to under-perform the WATER WAYS. But the stock apears to be less risky and, when comparing its historical volatility, Methode Electronics is 10.0 times less risky than WATER WAYS. The stock trades about -0.2 of its potential returns per unit of risk. The WATER WAYS TECHS is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  0.30  in WATER WAYS TECHS on December 23, 2024 and sell it today you would lose (0.15) from holding WATER WAYS TECHS or give up 50.0% of portfolio value over 90 days.

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

Methode Electronics  vs.  WATER WAYS TECHS

Methode Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Methode Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

WATER WAYS TECHS

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WATER WAYS TECHS are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, WATER WAYS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Methode Electronics and WATER WAYS

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

The idea behind Methode Electronics and WATER WAYS TECHS 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.