Correlation Between China Aircraft and Lincoln Electric

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

By analyzing existing cross correlation between China Aircraft Leasing and Lincoln Electric Holdings, you can compare the effects of market volatilities on China Aircraft and Lincoln Electric 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 China Aircraft with a short position of Lincoln Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Aircraft and Lincoln Electric.

Diversification Opportunities for China Aircraft and Lincoln Electric

-0.01

Correlation Coefficient

China Aircraft  Lincoln Electric

Good diversification

The 3 months correlation between China and Lincoln is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding China Aircraft Leasing and Lincoln Electric Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Electric Holdings and China Aircraft 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 China Aircraft Leasing are associated (or correlated) with Lincoln Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln Electric Holdings has no effect on the direction of China Aircraft i.e., China Aircraft and Lincoln Electric go up and down completely randomly.

Pair Corralation between China Aircraft and Lincoln Electric

Assuming the 90 days horizon China Aircraft Leasing is expected to generate 1.09 times more return on investment than Lincoln Electric. However, China Aircraft is 1.09 times more volatile than Lincoln Electric Holdings. It trades about 0.13 of its potential returns per unit of risk. Lincoln Electric Holdings is currently generating about 0.04 per unit of risk. If you would invest  40.00  in China Aircraft Leasing on December 28, 2024 and sell it today you would earn a total of  7.00  from holding China Aircraft Leasing or generate 17.5% return on investment over 90 days.

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

China Aircraft Leasing  vs.  Lincoln Electric Holdings

China Aircraft Leasing

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Aircraft Leasing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, China Aircraft reported solid returns over the last few months and may actually be approaching a breakup point.

Lincoln Electric Holdings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Lincoln Electric is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with China Aircraft and Lincoln Electric

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

The idea behind China Aircraft Leasing and Lincoln Electric Holdings 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.