Correlation Between Lincoln Electric and Church Dwight

Can any of the company-specific risk be diversified away by investing in both Lincoln Electric and Church Dwight 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 Church Dwight 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 Church Dwight, you can compare the effects of market volatilities on Lincoln Electric and Church Dwight 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 Church Dwight. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lincoln Electric and Church Dwight.

Diversification Opportunities for Lincoln Electric and Church Dwight

0.67

Correlation Coefficient

Lincoln Electric  Church Dwight

Poor diversification

The 3 months correlation between Lincoln and Church is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Church Dwight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Church Dwight 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 Church Dwight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Church Dwight has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Church Dwight go up and down completely randomly.

Pair Corralation between Lincoln Electric and Church Dwight

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to under-perform the Church Dwight. In addition to that, Lincoln Electric is 1.39 times more volatile than Church Dwight. It trades about -0.61 of its total potential returns per unit of risk. Church Dwight is currently generating about -0.23 per unit of volatility. If you would invest  11,013  in Church Dwight on September 30, 2024 and sell it today you would lose (419.00) from holding Church Dwight or give up 3.8% of portfolio value over 90 days.

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

Lincoln Electric Holdings  vs.  Church Dwight

Lincoln Electric Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lincoln Electric Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Church Dwight

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Church Dwight are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Church Dwight is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Lincoln Electric and Church Dwight

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

The idea behind Lincoln Electric Holdings and Church Dwight 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.