Correlation Between Lincoln Electric and Sonos

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

Diversification Opportunities for Lincoln Electric and Sonos

0.25

Correlation Coefficient

Lincoln Electric  Sonos

Modest diversification

The 3 months correlation between Lincoln and Sonos is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Sonos Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonos Inc 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 Sonos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonos Inc has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Sonos go up and down completely randomly.

Pair Corralation between Lincoln Electric and Sonos

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to under-perform the Sonos. But the stock apears to be less risky and, when comparing its historical volatility, Lincoln Electric Holdings is 1.32 times less risky than Sonos. The stock trades about -0.01 of its potential returns per unit of risk. The Sonos Inc is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,189  in Sonos Inc on October 7, 2024 and sell it today you would earn a total of  319.00  from holding Sonos Inc or generate 26.83% 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.  Sonos Inc

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.

Sonos Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sonos Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Sonos displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lincoln Electric and Sonos

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

The idea behind Lincoln Electric Holdings and Sonos Inc 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.