Correlation Between Methode Electronics and LGL

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

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

Diversification Opportunities for Methode Electronics and LGL

-0.13

Correlation Coefficient

Methode Electronics  LGL

Good diversification

The 3 months correlation between Methode and LGL is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and LGL Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGL Group 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 LGL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGL Group has no effect on the direction of Methode Electronics i.e., Methode Electronics and LGL go up and down completely randomly.

Pair Corralation between Methode Electronics and LGL

Considering the 90-day investment horizon Methode Electronics is expected to generate 1.83 times more return on investment than LGL. However, Methode Electronics is 1.83 times more volatile than LGL Group. It trades about 0.21 of its potential returns per unit of risk. LGL Group is currently generating about 0.03 per unit of risk. If you would invest  923.00  in Methode Electronics on August 31, 2024 and sell it today you would earn a total of  169.00  from holding Methode Electronics or generate 18.31% 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.  LGL Group

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.

LGL Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LGL Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, LGL is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Methode Electronics and LGL

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

The idea behind Methode Electronics and LGL Group 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.