Correlation Between Methode Electronics and TE Connectivity

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

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

Diversification Opportunities for Methode Electronics and TE Connectivity

-0.01

Correlation Coefficient

Methode Electronics  TE Connectivity

Good diversification

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

Pair Corralation between Methode Electronics and TE Connectivity

Considering the 90-day investment horizon Methode Electronics is expected to under-perform the TE Connectivity. In addition to that, Methode Electronics is 3.34 times more volatile than TE Connectivity. It trades about -0.15 of its total potential returns per unit of risk. TE Connectivity is currently generating about 0.05 per unit of volatility. If you would invest  14,438  in TE Connectivity on December 27, 2024 and sell it today you would earn a total of  536.00  from holding TE Connectivity or generate 3.71% 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.  TE Connectivity

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 unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

TE Connectivity

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TE Connectivity are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, TE Connectivity 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 TE Connectivity

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

The idea behind Methode Electronics and TE Connectivity 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.