Correlation Between Methode Electronics and Eltek

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

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

Diversification Opportunities for Methode Electronics and Eltek

-0.08

Correlation Coefficient

Methode Electronics  Eltek

Good diversification

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

Pair Corralation between Methode Electronics and Eltek

Considering the 90-day investment horizon Methode Electronics is expected to under-perform the Eltek. In addition to that, Methode Electronics is 2.48 times more volatile than Eltek. It trades about -0.13 of its total potential returns per unit of risk. Eltek is currently generating about 0.16 per unit of volatility. If you would invest  1,058  in Eltek on August 15, 2024 and sell it today you would earn a total of  59.00  from holding Eltek or generate 5.58% 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.  Eltek

Methode Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Methode Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Methode Electronics is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Eltek

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eltek are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Eltek may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Methode Electronics and Eltek

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

The idea behind Methode Electronics and Eltek 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.