Correlation Between United Breweries and METHODE ELECTRONICS

Can any of the company-specific risk be diversified away by investing in both United Breweries 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 United Breweries and METHODE ELECTRONICS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United Breweries Co and METHODE ELECTRONICS, you can compare the effects of market volatilities on United Breweries 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 United Breweries with a short position of METHODE ELECTRONICS. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Breweries and METHODE ELECTRONICS.

Diversification Opportunities for United Breweries and METHODE ELECTRONICS

0.64

Correlation Coefficient

United Breweries  METHODE ELECTRONICS

Poor diversification

The 3 months correlation between United and METHODE is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding United Breweries Co and METHODE ELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on METHODE ELECTRONICS and United Breweries 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 United Breweries Co 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 United Breweries i.e., United Breweries and METHODE ELECTRONICS go up and down completely randomly.

Pair Corralation between United Breweries and METHODE ELECTRONICS

Assuming the 90 days trading horizon United Breweries is expected to generate 2.34 times less return on investment than METHODE ELECTRONICS. But when comparing it to its historical volatility, United Breweries Co is 4.93 times less risky than METHODE ELECTRONICS. It trades about 0.24 of its potential returns per unit of risk. METHODE ELECTRONICS is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,050  in METHODE ELECTRONICS on September 24, 2024 and sell it today you would earn a total of  130.00  from holding METHODE ELECTRONICS or generate 12.38% return on investment over 90 days.

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

United Breweries Co  vs.  METHODE ELECTRONICS

United Breweries

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Breweries Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, United Breweries unveiled solid returns over the last few months and may actually be approaching a breakup point.

METHODE ELECTRONICS

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in METHODE ELECTRONICS are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, METHODE ELECTRONICS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Breweries and METHODE ELECTRONICS

The main advantage of trading using opposite United Breweries and METHODE ELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Breweries 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.

The idea behind United Breweries Co 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.