Correlation Between X FAB and Methode Electronics
Can any of the company-specific risk be diversified away by investing in both X FAB 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 X FAB and Methode Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between X FAB Silicon Foundries and Methode Electronics, you can compare the effects of market volatilities on X FAB 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 X FAB with a short position of Methode Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of X FAB and Methode Electronics.
Diversification Opportunities for X FAB and Methode Electronics
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between XFB and Methode is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and X FAB 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 X FAB Silicon Foundries 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 X FAB i.e., X FAB and Methode Electronics go up and down completely randomly.
Pair Corralation between X FAB and Methode Electronics
Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the Methode Electronics. But the stock apears to be less risky and, when comparing its historical volatility, X FAB Silicon Foundries is 1.79 times less risky than Methode Electronics. The stock trades about -0.07 of its potential returns per unit of risk. The Methode Electronics is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 1,875 in Methode Electronics on October 27, 2024 and sell it today you would lose (645.00) from holding Methode Electronics or give up 34.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
X FAB Silicon Foundries vs. Methode Electronics
Performance |
| Timeline |
| X FAB Silicon |
| Methode Electronics |
X FAB and Methode Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with X FAB and Methode Electronics
The main advantage of trading using opposite X FAB and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X FAB 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.| X FAB vs. Q2M Managementberatung AG | X FAB vs. SALESFORCE INC CDR | X FAB vs. Jacquet Metal Service | X FAB vs. MCEWEN MINING INC |
| Methode Electronics vs. BRIT AMER TOBACCO | Methode Electronics vs. BE Semiconductor Industries | Methode Electronics vs. NORTHEAST UTILITIES | Methode Electronics vs. JAPAN TOBACCO UNSPADR12 |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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