Correlation Between Methode Electronics and JAPAN AIRLINES

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

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

Diversification Opportunities for Methode Electronics and JAPAN AIRLINES

0.61

Correlation Coefficient

Methode Electronics  JAPAN AIRLINES

Poor diversification

The 3 months correlation between Methode and JAPAN is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and JAPAN AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAPAN AIRLINES 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 JAPAN AIRLINES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAPAN AIRLINES has no effect on the direction of Methode Electronics i.e., Methode Electronics and JAPAN AIRLINES go up and down completely randomly.

Pair Corralation between Methode Electronics and JAPAN AIRLINES

Assuming the 90 days trading horizon Methode Electronics is expected to generate 2.75 times more return on investment than JAPAN AIRLINES. However, Methode Electronics is 2.75 times more volatile than JAPAN AIRLINES. It trades about 0.08 of its potential returns per unit of risk. JAPAN AIRLINES is currently generating about 0.07 per unit of risk. If you would invest  498.00  in Methode Electronics on April 22, 2025 and sell it today you would earn a total of  82.00  from holding Methode Electronics or generate 16.47% return on investment over 90 days.

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

Methode Electronics  vs.  JAPAN AIRLINES

Methode Electronics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Methode Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

JAPAN AIRLINES

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN AIRLINES are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, JAPAN AIRLINES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Methode Electronics and JAPAN AIRLINES

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

The idea behind Methode Electronics and JAPAN AIRLINES 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.