Correlation Between Eltek and Methode Electronics

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

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

Diversification Opportunities for Eltek and Methode Electronics

-0.03

Correlation Coefficient

Eltek  Methode Electronics

Good diversification

The 3 months correlation between Eltek and Methode is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Eltek and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and Eltek 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 Eltek 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 Eltek i.e., Eltek and Methode Electronics go up and down completely randomly.

Pair Corralation between Eltek and Methode Electronics

Given the investment horizon of 90 days Eltek is expected to generate 1.06 times more return on investment than Methode Electronics. However, Eltek is 1.06 times more volatile than Methode Electronics. It trades about 0.04 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.04 per unit of risk. If you would invest  807.00  in Eltek on August 11, 2024 and sell it today you would earn a total of  265.00  from holding Eltek or generate 32.84% return on investment over 90 days.

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

Eltek  vs.  Methode Electronics

Eltek

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 Eltek and Methode Electronics

The main advantage of trading using opposite Eltek and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eltek 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 Eltek 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.

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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.