Correlation Between Flex and Methode Electronics

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

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

Diversification Opportunities for Flex and Methode Electronics

-0.25

Correlation Coefficient

Flex  Methode Electronics

Very good diversification

The 3 months correlation between Flex and Methode is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Flex and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and Flex 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 Flex 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 Flex i.e., Flex and Methode Electronics go up and down completely randomly.

Pair Corralation between Flex and Methode Electronics

Given the investment horizon of 90 days Flex is expected to generate 0.64 times more return on investment than Methode Electronics. However, Flex is 1.56 times less risky than Methode Electronics. It trades about 0.1 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.08 per unit of risk. If you would invest  2,875  in Flex on March 13, 2024 and sell it today you would earn a total of  399.00  from holding Flex or generate 13.88% return on investment over 90 days.

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

Flex  vs.  Methode Electronics

Flex

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flex are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Flex showed solid returns over the last few months and may actually be approaching a breakup point.

Methode Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Methode Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in July 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Flex and Methode Electronics

The main advantage of trading using opposite Flex and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flex 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.

The idea behind Flex 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..