Correlation Between Communication Services and Methode Electronics

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

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

Diversification Opportunities for Communication Services and Methode Electronics

0.66

Correlation Coefficient

Communication Services  Methode Electronics

Poor diversification

The 3 months correlation between Communication and Methode is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Communication Services Select and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and Communication Services 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 Communication Services Select 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 Communication Services i.e., Communication Services and Methode Electronics go up and down completely randomly.

Pair Corralation between Communication Services and Methode Electronics

Considering the 90-day investment horizon Communication Services is expected to generate 1.55 times less return on investment than Methode Electronics. But when comparing it to its historical volatility, Communication Services Select is 4.31 times less risky than Methode Electronics. It trades about 0.12 of its potential returns per unit of risk. Methode Electronics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  643.00  in Methode Electronics on August 8, 2025 and sell it today you would earn a total of  36.00  from holding Methode Electronics or generate 5.6% return on investment over 90 days.

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

Communication Services Select  vs.  Methode Electronics

Communication Services

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Communication Services Select are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Communication Services is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Methode Electronics

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical and fundamental indicators, Methode Electronics may actually be approaching a critical reversion point that can send shares even higher in December 2025.

Pair Trading with Communication Services and Methode Electronics

The main advantage of trading using opposite Communication Services and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Communication Services 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 Communication Services Select 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.