Correlation Between Methode Electronics and NLIGHT

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

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

Diversification Opportunities for Methode Electronics and NLIGHT

-0.37

Correlation Coefficient

Methode Electronics  NLIGHT

Very good diversification

The 3 months correlation between Methode and NLIGHT is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and nLIGHT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nLIGHT Inc 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 NLIGHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nLIGHT Inc has no effect on the direction of Methode Electronics i.e., Methode Electronics and NLIGHT go up and down completely randomly.

Pair Corralation between Methode Electronics and NLIGHT

Considering the 90-day investment horizon Methode Electronics is expected to under-perform the NLIGHT. In addition to that, Methode Electronics is 1.11 times more volatile than nLIGHT Inc. It trades about -0.05 of its total potential returns per unit of risk. nLIGHT Inc is currently generating about 0.01 per unit of volatility. If you would invest  1,240  in nLIGHT Inc on October 22, 2024 and sell it today you would lose (130.00) from holding nLIGHT Inc or give up 10.48% 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.  nLIGHT Inc

Methode Electronics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Methode Electronics demonstrated solid returns over the last few months and may actually be approaching a breakup point.

nLIGHT Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in nLIGHT Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, NLIGHT reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Methode Electronics and NLIGHT

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

The idea behind Methode Electronics and nLIGHT Inc 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 Transaction History module to view history of all your transactions and understand their impact on performance.