Correlation Between METHODE ELECTRONICS and American Airlines
Can any of the company-specific risk be diversified away by investing in both METHODE ELECTRONICS and American Airlines 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 American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between METHODE ELECTRONICS and American Airlines Group, you can compare the effects of market volatilities on METHODE ELECTRONICS and American Airlines 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of METHODE ELECTRONICS and American Airlines.
Diversification Opportunities for METHODE ELECTRONICS and American Airlines
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between METHODE and American is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding METHODE ELECTRONICS and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of METHODE ELECTRONICS i.e., METHODE ELECTRONICS and American Airlines go up and down completely randomly.
Pair Corralation between METHODE ELECTRONICS and American Airlines
Assuming the 90 days trading horizon METHODE ELECTRONICS is expected to generate 1.42 times more return on investment than American Airlines. However, METHODE ELECTRONICS is 1.42 times more volatile than American Airlines Group. It trades about 0.23 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.17 per unit of risk. If you would invest 840.00 in METHODE ELECTRONICS on September 4, 2024 and sell it today you would earn a total of 190.00 from holding METHODE ELECTRONICS or generate 22.62% 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. American Airlines Group
Performance |
| Timeline |
| METHODE ELECTRONICS |
| American Airlines |
METHODE ELECTRONICS and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with METHODE ELECTRONICS and American Airlines
The main advantage of trading using opposite METHODE ELECTRONICS and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if METHODE ELECTRONICS position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| METHODE ELECTRONICS vs. TOTAL GABON | METHODE ELECTRONICS vs. Walgreens Boots Alliance | METHODE ELECTRONICS vs. Peak Resources Limited |
| American Airlines vs. Delta Air Lines | American Airlines vs. AIR CHINA LTD | American Airlines vs. RYANAIR HLDGS ADR | American Airlines vs. Southwest Airlines Co |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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