Correlation Between Lincoln Electric and Designer Brands

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

Diversification Opportunities for Lincoln Electric and Designer Brands

-0.27

Correlation Coefficient

Lincoln Electric  Designer Brands

Very good diversification

The 3 months correlation between Lincoln and Designer is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Designer Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Designer Brands 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 Designer Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Designer Brands has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Designer Brands go up and down completely randomly.

Pair Corralation between Lincoln Electric and Designer Brands

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 0.32 times more return on investment than Designer Brands. However, Lincoln Electric Holdings is 3.09 times less risky than Designer Brands. It trades about 0.18 of its potential returns per unit of risk. Designer Brands is currently generating about 0.03 per unit of risk. If you would invest  19,013  in Lincoln Electric Holdings on October 26, 2024 and sell it today you would earn a total of  849.00  from holding Lincoln Electric Holdings or generate 4.47% return on investment over 90 days.

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

Lincoln Electric Holdings  vs.  Designer Brands

Lincoln Electric Holdings

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 2 (%) 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.

Designer Brands

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Designer Brands are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental drivers, Designer Brands may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Lincoln Electric and Designer Brands

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

The idea behind Lincoln Electric Holdings and Designer Brands 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.