Correlation Between Lincoln Electric and Raytech Holding

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

Diversification Opportunities for Lincoln Electric and Raytech Holding

-0.6

Correlation Coefficient

Lincoln Electric  Raytech Holding

Excellent diversification

The 3 months correlation between Lincoln and Raytech is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Raytech Holding Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytech Holding 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 Raytech Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytech Holding has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Raytech Holding go up and down completely randomly.

Pair Corralation between Lincoln Electric and Raytech Holding

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 0.38 times more return on investment than Raytech Holding. However, Lincoln Electric Holdings is 2.62 times less risky than Raytech Holding. It trades about 0.12 of its potential returns per unit of risk. Raytech Holding Limited is currently generating about -0.04 per unit of risk. If you would invest  18,364  in Lincoln Electric Holdings on September 14, 2024 and sell it today you would earn a total of  2,399  from holding Lincoln Electric Holdings or generate 13.06% return on investment over 90 days.

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

Lincoln Electric Holdings  vs.  Raytech Holding Limited

Lincoln Electric Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 9 (%) 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.

Raytech Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Raytech Holding Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lincoln Electric and Raytech Holding

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

The idea behind Lincoln Electric Holdings and Raytech Holding Limited 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 Anywhere module to track or share privately all of your investments from the convenience of any device.