Correlation Between Lincoln Electric and Burlington Stores

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

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

Diversification Opportunities for Lincoln Electric and Burlington Stores

0.44

Correlation Coefficient

Lincoln Electric  Burlington Stores

Very weak diversification

The 3 months correlation between Lincoln and Burlington is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and Lincoln Electric 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 Lincoln Electric Holdings are associated (or correlated) with Burlington Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burlington Stores has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Burlington Stores go up and down completely randomly.

Pair Corralation between Lincoln Electric and Burlington Stores

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to under-perform the Burlington Stores. But the stock apears to be less risky and, when comparing its historical volatility, Lincoln Electric Holdings is 1.25 times less risky than Burlington Stores. The stock trades about -0.29 of its potential returns per unit of risk. The Burlington Stores is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  27,286  in Burlington Stores on September 22, 2024 and sell it today you would earn a total of  1,239  from holding Burlington Stores or generate 4.54% return on investment over 90 days.

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

Lincoln Electric Holdings  vs.  Burlington Stores

Lincoln Electric Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 1 (%) 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.

Burlington Stores

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Burlington Stores are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Burlington Stores is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Lincoln Electric and Burlington Stores

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

The idea behind Lincoln Electric Holdings and Burlington Stores 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.