Correlation Between Lincoln Electric and United Utilities

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

Diversification Opportunities for Lincoln Electric and United Utilities

0.33

Correlation Coefficient

Lincoln Electric  United Utilities

Weak diversification

The 3 months correlation between Lincoln and United is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities 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 United Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Utilities has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and United Utilities go up and down completely randomly.

Pair Corralation between Lincoln Electric and United Utilities

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 0.86 times more return on investment than United Utilities. However, Lincoln Electric Holdings is 1.16 times less risky than United Utilities. It trades about 0.04 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.03 per unit of risk. If you would invest  14,268  in Lincoln Electric Holdings on September 24, 2024 and sell it today you would earn a total of  4,622  from holding Lincoln Electric Holdings or generate 32.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	62.05%
Values	Daily Returns

Lincoln Electric Holdings  vs.  United Utilities Group

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.

United Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Utilities Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, United Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lincoln Electric and United Utilities

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

The idea behind Lincoln Electric Holdings and United Utilities Group 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.