Correlation Between Lincoln Electric and Willis Lease

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

Diversification Opportunities for Lincoln Electric and Willis Lease

0.23

Correlation Coefficient

Lincoln Electric  Willis Lease

Modest diversification

The 3 months correlation between Lincoln and Willis is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Willis Lease Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Willis Lease Finance 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 Willis Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Willis Lease Finance has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Willis Lease go up and down completely randomly.

Pair Corralation between Lincoln Electric and Willis Lease

Given the investment horizon of 90 days Lincoln Electric is expected to generate 5.52 times less return on investment than Willis Lease. But when comparing it to its historical volatility, Lincoln Electric Holdings is 1.71 times less risky than Willis Lease. It trades about 0.03 of its potential returns per unit of risk. Willis Lease Finance is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,665  in Willis Lease Finance on October 23, 2024 and sell it today you would earn a total of  14,106  from holding Willis Lease Finance or generate 248.99% 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.  Willis Lease Finance

Lincoln Electric Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 1 (%) 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 newest stock price disarray, may contribute to short-term losses for the investors.

Willis Lease Finance

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Willis Lease Finance are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Willis Lease may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Lincoln Electric and Willis Lease

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

The idea behind Lincoln Electric Holdings and Willis Lease Finance 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.