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

0.87

Correlation Coefficient

Eltek  Methode Electronics

Very poor diversification

The 3 months correlation between Eltek and Methode is 0.87. 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 2.17 times less return on investment than Methode Electronics. But when comparing it to its historical volatility, Eltek is 1.55 times less risky than Methode Electronics. It trades about 0.04 of its potential returns per unit of risk. Methode Electronics is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  622.00  in Methode Electronics on January 30, 2025 and sell it today you would earn a total of  17.00  from holding Methode Electronics or generate 2.73% return on investment over 90 days.

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

Eltek  vs.  Methode Electronics

Eltek

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eltek has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 May 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.