Correlation Between Methode Electronics and Richardson Electronics

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

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

Diversification Opportunities for Methode Electronics and Richardson Electronics

-0.29

Correlation Coefficient

Methode Electronics  Richardson Electronics

Very good diversification

The 3 months correlation between Methode and Richardson is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics 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 Richardson Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richardson Electronics has no effect on the direction of Methode Electronics i.e., Methode Electronics and Richardson Electronics go up and down completely randomly.

Pair Corralation between Methode Electronics and Richardson Electronics

Considering the 90-day investment horizon Methode Electronics is expected to under-perform the Richardson Electronics. In addition to that, Methode Electronics is 1.92 times more volatile than Richardson Electronics. It trades about -0.02 of its total potential returns per unit of risk. Richardson Electronics is currently generating about 0.16 per unit of volatility. If you would invest  1,162  in Richardson Electronics on August 15, 2024 and sell it today you would earn a total of  237.00  from holding Richardson Electronics or generate 20.4% 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.  Richardson Electronics

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.

Richardson Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Richardson Electronics disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Methode Electronics and Richardson Electronics

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

The idea behind Methode Electronics and Richardson 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 Global Correlations module to find global opportunities by holding instruments from different markets.