Correlation Between LGL and Methode Electronics

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

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

Diversification Opportunities for LGL and Methode Electronics

0.44

Correlation Coefficient

LGL  Methode Electronics

Very weak diversification

The 3 months correlation between LGL and Methode is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding LGL Group and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and LGL 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 LGL Group 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 LGL i.e., LGL and Methode Electronics go up and down completely randomly.

Pair Corralation between LGL and Methode Electronics

Considering the 90-day investment horizon LGL Group is expected to generate 0.59 times more return on investment than Methode Electronics. However, LGL Group is 1.7 times less risky than Methode Electronics. It trades about -0.06 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.14 per unit of risk. If you would invest  583.00  in LGL Group on March 5, 2024 and sell it today you would lose (77.00) from holding LGL Group or give up 13.21% of portfolio value over 90 days.

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

LGL Group  vs.  Methode Electronics

LGL Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LGL Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 inconsistent 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 LGL and Methode Electronics

The main advantage of trading using opposite LGL and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGL 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 LGL Group 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..