Correlation Between Lincoln Electric and Virgin Group

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

Diversification Opportunities for Lincoln Electric and Virgin Group

0.36

Correlation Coefficient

Lincoln Electric  Virgin Group

Weak diversification

The 3 months correlation between Lincoln and Virgin is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Virgin Group Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virgin Group Acquisition 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 Virgin Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virgin Group Acquisition has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Virgin Group go up and down completely randomly.

Pair Corralation between Lincoln Electric and Virgin Group

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 0.32 times more return on investment than Virgin Group. However, Lincoln Electric Holdings is 3.14 times less risky than Virgin Group. It trades about 0.03 of its potential returns per unit of risk. Virgin Group Acquisition is currently generating about 0.01 per unit of risk. If you would invest  15,237  in Lincoln Electric Holdings on October 11, 2024 and sell it today you would earn a total of  3,308  from holding Lincoln Electric Holdings or generate 21.71% return on investment over 90 days.

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

Lincoln Electric Holdings  vs.  Virgin Group Acquisition

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.

Virgin Group Acquisition

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Virgin Group Acquisition are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Virgin Group showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lincoln Electric and Virgin Group

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

The idea behind Lincoln Electric Holdings and Virgin Group Acquisition 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.