Correlation Between Contact Energy and METHODE ELECTRONICS
Can any of the company-specific risk be diversified away by investing in both Contact Energy 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 Contact Energy and METHODE ELECTRONICS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Contact Energy Limited and METHODE ELECTRONICS, you can compare the effects of market volatilities on Contact Energy 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 Contact Energy with a short position of METHODE ELECTRONICS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Contact Energy and METHODE ELECTRONICS.
Diversification Opportunities for Contact Energy and METHODE ELECTRONICS
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Contact and METHODE is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Contact Energy Limited and METHODE ELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on METHODE ELECTRONICS and Contact Energy 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 Contact Energy Limited 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 Contact Energy i.e., Contact Energy and METHODE ELECTRONICS go up and down completely randomly.
Pair Corralation between Contact Energy and METHODE ELECTRONICS
Assuming the 90 days horizon Contact Energy Limited is expected to generate 0.35 times more return on investment than METHODE ELECTRONICS. However, Contact Energy Limited is 2.88 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 -0.03 per unit of risk. If you would invest 391.00 in Contact Energy Limited on September 12, 2024 and sell it today you would earn a total of 69.00 from holding Contact Energy Limited or generate 17.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.72% |
| Values | Daily Returns |
Contact Energy Limited vs. METHODE ELECTRONICS
Performance |
| Timeline |
| Contact Energy |
| METHODE ELECTRONICS |
Contact Energy and METHODE ELECTRONICS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Contact Energy and METHODE ELECTRONICS
The main advantage of trading using opposite Contact Energy and METHODE ELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Contact Energy 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's long position.| Contact Energy vs. METHODE ELECTRONICS | Contact Energy vs. STMICROELECTRONICS | Contact Energy vs. Richardson Electronics | Contact Energy vs. ARROW ELECTRONICS |
| METHODE ELECTRONICS vs. Apple Inc | METHODE ELECTRONICS vs. Apple Inc | METHODE ELECTRONICS vs. Apple Inc | METHODE ELECTRONICS vs. Apple Inc |
Check out your portfolio center.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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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