Correlation Between Lincoln Electric and Stanley Black

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

Diversification Opportunities for Lincoln Electric and Stanley Black

0.59

Correlation Coefficient

Lincoln Electric  Stanley Black

Very weak diversification

The 3 months correlation between Lincoln and Stanley is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Stanley Black Decker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stanley Black Decker 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 Stanley Black. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stanley Black Decker has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Stanley Black go up and down completely randomly.

Pair Corralation between Lincoln Electric and Stanley Black

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 1.1 times more return on investment than Stanley Black. However, Lincoln Electric is 1.1 times more volatile than Stanley Black Decker. It trades about 0.04 of its potential returns per unit of risk. Stanley Black Decker is currently generating about -0.02 per unit of risk. If you would invest  18,749  in Lincoln Electric Holdings on December 29, 2024 and sell it today you would earn a total of  737.00  from holding Lincoln Electric Holdings or generate 3.93% return on investment over 90 days.

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

Lincoln Electric Holdings  vs.  Stanley Black Decker

Lincoln Electric Holdings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Lincoln Electric is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Stanley Black Decker

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stanley Black Decker has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Stanley Black is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Lincoln Electric and Stanley Black

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

The idea behind Lincoln Electric Holdings and Stanley Black Decker 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..