Correlation Between Lincoln Electric and Eltek

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

Diversification Opportunities for Lincoln Electric and Eltek

0.09

Correlation Coefficient

Lincoln Electric  Eltek

Significant diversification

The 3 months correlation between Lincoln and Eltek is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Eltek in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eltek 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 Eltek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eltek has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Eltek go up and down completely randomly.

Pair Corralation between Lincoln Electric and Eltek

Given the investment horizon of 90 days Lincoln Electric is expected to generate 11.49 times less return on investment than Eltek. But when comparing it to its historical volatility, Lincoln Electric Holdings is 1.34 times less risky than Eltek. It trades about 0.01 of its potential returns per unit of risk. Eltek is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,049  in Eltek on October 22, 2024 and sell it today you would earn a total of  58.00  from holding Eltek or generate 5.53% return on investment over 90 days.

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

Lincoln Electric Holdings  vs.  Eltek

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.

Eltek

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Lincoln Electric and Eltek

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

The idea behind Lincoln Electric Holdings and Eltek 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.