Correlation Between Benchmark Electronics and Methode Electronics

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

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

Diversification Opportunities for Benchmark Electronics and Methode Electronics

0.08

Correlation Coefficient

Benchmark Electronics  Methode Electronics

Significant diversification

The 3 months correlation between Benchmark and Methode is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Benchmark Electronics and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and Benchmark 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 Benchmark Electronics are associated (or correlated) with Methode Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methode Electronics has no effect on the direction of Benchmark Electronics i.e., Benchmark Electronics and Methode Electronics go up and down completely randomly.

Pair Corralation between Benchmark Electronics and Methode Electronics

Considering the 90-day investment horizon Benchmark Electronics is expected to generate 0.59 times more return on investment than Methode Electronics. However, Benchmark Electronics is 1.7 times less risky than Methode Electronics. It trades about 0.07 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.06 per unit of risk. If you would invest  2,746  in Benchmark Electronics on August 11, 2024 and sell it today you would earn a total of  2,437  from holding Benchmark Electronics or generate 88.75% return on investment over 90 days.

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

Benchmark Electronics  vs.  Methode Electronics

Benchmark Electronics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Benchmark Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Methode Electronics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Methode Electronics is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Benchmark Electronics and Methode Electronics

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

The idea behind Benchmark Electronics and Methode Electronics 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.