Correlation Between METHODE ELECTRONICS and Applied Materials
Can any of the company-specific risk be diversified away by investing in both METHODE ELECTRONICS and Applied Materials 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 Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between METHODE ELECTRONICS and Applied Materials, you can compare the effects of market volatilities on METHODE ELECTRONICS and Applied Materials 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 Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of METHODE ELECTRONICS and Applied Materials.
Diversification Opportunities for METHODE ELECTRONICS and Applied Materials
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between METHODE and Applied is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding METHODE ELECTRONICS and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of METHODE ELECTRONICS i.e., METHODE ELECTRONICS and Applied Materials go up and down completely randomly.
Pair Corralation between METHODE ELECTRONICS and Applied Materials
Assuming the 90 days trading horizon METHODE ELECTRONICS is expected to generate 1.56 times more return on investment than Applied Materials. However, METHODE ELECTRONICS is 1.56 times more volatile than Applied Materials. It trades about 0.25 of its potential returns per unit of risk. Applied Materials is currently generating about 0.03 per unit of risk. If you would invest 840.00 in METHODE ELECTRONICS on September 3, 2024 and sell it today you would earn a total of 200.00 from holding METHODE ELECTRONICS or generate 23.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
METHODE ELECTRONICS vs. Applied Materials
Performance |
| Timeline |
| METHODE ELECTRONICS |
| Applied Materials |
METHODE ELECTRONICS and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with METHODE ELECTRONICS and Applied Materials
The main advantage of trading using opposite METHODE ELECTRONICS and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if METHODE ELECTRONICS position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.| METHODE ELECTRONICS vs. TOTAL GABON | METHODE ELECTRONICS vs. Walgreens Boots Alliance | METHODE ELECTRONICS vs. Peak Resources Limited |
| Applied Materials vs. ASML HOLDING NY | Applied Materials vs. ASML Holding NV | Applied Materials vs. ASML Holding NV | Applied Materials vs. Lam Research |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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