Correlation Between Lincoln Electric and Iris Energy

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

Diversification Opportunities for Lincoln Electric and Iris Energy

0.48

Correlation Coefficient

Lincoln Electric  Iris Energy

Very weak diversification

The 3 months correlation between Lincoln and Iris is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Iris Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iris Energy 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 Iris Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iris Energy has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Iris Energy go up and down completely randomly.

Pair Corralation between Lincoln Electric and Iris Energy

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 0.19 times more return on investment than Iris Energy. However, Lincoln Electric Holdings is 5.3 times less risky than Iris Energy. It trades about -0.56 of its potential returns per unit of risk. Iris Energy is currently generating about -0.19 per unit of risk. If you would invest  20,817  in Lincoln Electric Holdings on October 11, 2024 and sell it today you would lose (2,272) from holding Lincoln Electric Holdings or give up 10.91% of portfolio value over 90 days.

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

Lincoln Electric Holdings  vs.  Iris Energy

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.

Iris Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Iris Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Iris Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lincoln Electric and Iris Energy

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

The idea behind Lincoln Electric Holdings and Iris Energy 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.