Correlation Between Lincoln Electric and 191216DP2

Can any of the company-specific risk be diversified away by investing in both Lincoln Electric and 191216DP2 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 191216DP2 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 COCA COLA CO, you can compare the effects of market volatilities on Lincoln Electric and 191216DP2 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 191216DP2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lincoln Electric and 191216DP2.

Diversification Opportunities for Lincoln Electric and 191216DP2

0.05

Correlation Coefficient

Lincoln Electric  191216DP2

Significant diversification

The 3 months correlation between Lincoln and 191216DP2 is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and COCA COLA CO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COCA A CO 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 191216DP2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COCA A CO has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and 191216DP2 go up and down completely randomly.

Pair Corralation between Lincoln Electric and 191216DP2

Given the investment horizon of 90 days Lincoln Electric is expected to generate 2.79 times less return on investment than 191216DP2. In addition to that, Lincoln Electric is 2.47 times more volatile than COCA COLA CO. It trades about 0.0 of its total potential returns per unit of risk. COCA COLA CO is currently generating about 0.03 per unit of volatility. If you would invest  8,450  in COCA COLA CO on October 13, 2024 and sell it today you would earn a total of  272.00  from holding COCA COLA CO or generate 3.22% return on investment over 90 days.

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

Lincoln Electric Holdings  vs.  COCA COLA CO

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.

COCA A CO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COCA COLA CO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 191216DP2 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lincoln Electric and 191216DP2

The main advantage of trading using opposite Lincoln Electric and 191216DP2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lincoln Electric position performs unexpectedly, 191216DP2 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 191216DP2 will offset losses from the drop in 191216DP2's long position.

The idea behind Lincoln Electric Holdings and COCA COLA CO 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.