Correlation Between Desktop Metal and Methode Electronics

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

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

Diversification Opportunities for Desktop Metal and Methode Electronics

-0.78

Correlation Coefficient

Desktop Metal  Methode Electronics

Pay attention - limited upside

The 3 months correlation between Desktop and Methode is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Desktop Metal and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and Desktop Metal 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 Desktop Metal 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 Desktop Metal i.e., Desktop Metal and Methode Electronics go up and down completely randomly.

Pair Corralation between Desktop Metal and Methode Electronics

Allowing for the 90-day total investment horizon Desktop Metal is expected to under-perform the Methode Electronics. In addition to that, Desktop Metal is 2.38 times more volatile than Methode Electronics. It trades about -0.03 of its total potential returns per unit of risk. Methode Electronics is currently generating about 0.1 per unit of volatility. If you would invest  1,197  in Methode Electronics on February 1, 2024 and sell it today you would earn a total of  63.00  from holding Methode Electronics or generate 5.26% return on investment over 90 days.

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

Desktop Metal  vs.  Methode Electronics

Desktop Metal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Desktop Metal are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent primary indicators, Desktop Metal displayed 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 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 June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Desktop Metal and Methode Electronics

The main advantage of trading using opposite Desktop Metal and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Desktop Metal 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 Desktop Metal 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.