Correlation Between METHODE ELECTRONICS and NEL ASA

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

By analyzing existing cross correlation between METHODE ELECTRONICS and NEL ASA ADR30, you can compare the effects of market volatilities on METHODE ELECTRONICS and NEL ASA 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 NEL ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of METHODE ELECTRONICS and NEL ASA.

Diversification Opportunities for METHODE ELECTRONICS and NEL ASA

-0.15

Correlation Coefficient

METHODE ELECTRONICS  NEL ASA

Good diversification

The 3 months correlation between METHODE and NEL is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding METHODE ELECTRONICS and NEL ASA ADR30 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEL ASA ADR30 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 NEL ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEL ASA ADR30 has no effect on the direction of METHODE ELECTRONICS i.e., METHODE ELECTRONICS and NEL ASA go up and down completely randomly.

Pair Corralation between METHODE ELECTRONICS and NEL ASA

Assuming the 90 days trading horizon METHODE ELECTRONICS is expected to under-perform the NEL ASA. But the stock apears to be less risky and, when comparing its historical volatility, METHODE ELECTRONICS is 1.53 times less risky than NEL ASA. The stock trades about -0.05 of its potential returns per unit of risk. The NEL ASA ADR30 is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,794  in NEL ASA ADR30 on September 3, 2024 and sell it today you would lose (3,079) from holding NEL ASA ADR30 or give up 81.15% of portfolio value over 90 days.

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

METHODE ELECTRONICS  vs.  NEL ASA ADR30

METHODE ELECTRONICS

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in METHODE ELECTRONICS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, METHODE ELECTRONICS unveiled solid returns over the last few months and may actually be approaching a breakup point.

NEL ASA ADR30

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEL ASA ADR30 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 technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with METHODE ELECTRONICS and NEL ASA

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

The idea behind METHODE ELECTRONICS and NEL ASA ADR30 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.