Correlation Between Methode Electronics and FIT Hon

Can any of the company-specific risk be diversified away by investing in both Methode Electronics and FIT Hon 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 FIT Hon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Methode Electronics and FIT Hon Teng, you can compare the effects of market volatilities on Methode Electronics and FIT Hon 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 FIT Hon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Methode Electronics and FIT Hon.

Diversification Opportunities for Methode Electronics and FIT Hon

0.31

Correlation Coefficient

Methode Electronics  FIT Hon

Weak diversification

The 3 months correlation between Methode and FIT is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and FIT Hon Teng in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIT Hon Teng 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 FIT Hon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FIT Hon Teng has no effect on the direction of Methode Electronics i.e., Methode Electronics and FIT Hon go up and down completely randomly.

Pair Corralation between Methode Electronics and FIT Hon

Considering the 90-day investment horizon Methode Electronics is expected to generate 1.68 times more return on investment than FIT Hon. However, Methode Electronics is 1.68 times more volatile than FIT Hon Teng. It trades about 0.11 of its potential returns per unit of risk. FIT Hon Teng is currently generating about 0.02 per unit of risk. If you would invest  1,092  in Methode Electronics on September 28, 2024 and sell it today you would earn a total of  106.00  from holding Methode Electronics or generate 9.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.91%
Values	Daily Returns

Methode Electronics  vs.  FIT Hon Teng

Methode Electronics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical and fundamental indicators, Methode Electronics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FIT Hon Teng

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FIT Hon Teng are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, FIT Hon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Methode Electronics and FIT Hon

The main advantage of trading using opposite Methode Electronics and FIT Hon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Methode Electronics position performs unexpectedly, FIT Hon 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 FIT Hon will offset losses from the drop in FIT Hon's long position.

The idea behind Methode Electronics and FIT Hon Teng 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.