Correlation Between Lincoln Electric and Inter Parfums

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

Diversification Opportunities for Lincoln Electric and Inter Parfums

0.8

Correlation Coefficient

Lincoln Electric  Inter Parfums

Very poor diversification

The 3 months correlation between Lincoln and Inter is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Inter Parfums in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inter Parfums 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 Inter Parfums. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inter Parfums has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Inter Parfums go up and down completely randomly.

Pair Corralation between Lincoln Electric and Inter Parfums

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to under-perform the Inter Parfums. But the stock apears to be less risky and, when comparing its historical volatility, Lincoln Electric Holdings is 1.25 times less risky than Inter Parfums. The stock trades about -0.08 of its potential returns per unit of risk. The Inter Parfums is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  12,600  in Inter Parfums on September 13, 2024 and sell it today you would earn a total of  1,054  from holding Inter Parfums or generate 8.37% return on investment over 90 days.

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

Lincoln Electric Holdings  vs.  Inter Parfums

Lincoln Electric Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Lincoln Electric displayed solid returns over the last few months and may actually be approaching a breakup point.

Inter Parfums

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inter Parfums are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Inter Parfums reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lincoln Electric and Inter Parfums

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

The idea behind Lincoln Electric Holdings and Inter Parfums 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.