Correlation Between Lincoln Electric and Techtronic Industries

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

Diversification Opportunities for Lincoln Electric and Techtronic Industries

0.71

Correlation Coefficient

Lincoln Electric  Techtronic Industries

Poor diversification

The 3 months correlation between Lincoln and Techtronic is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Techtronic Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Techtronic Industries 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 Techtronic Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Techtronic Industries has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Techtronic Industries go up and down completely randomly.

Pair Corralation between Lincoln Electric and Techtronic Industries

Assuming the 90 days horizon Lincoln Electric Holdings is expected to generate 0.98 times more return on investment than Techtronic Industries. However, Lincoln Electric Holdings is 1.02 times less risky than Techtronic Industries. It trades about -0.02 of its potential returns per unit of risk. Techtronic Industries is currently generating about -0.07 per unit of risk. If you would invest  18,229  in Lincoln Electric Holdings on December 24, 2024 and sell it today you would lose (629.00) from holding Lincoln Electric Holdings or give up 3.45% of portfolio value over 90 days.

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

Lincoln Electric Holdings  vs.  Techtronic Industries

Lincoln Electric Holdings

Risk-Adjusted Performance

Very Weak

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

Techtronic Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Techtronic Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Lincoln Electric and Techtronic Industries

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

The idea behind Lincoln Electric Holdings and Techtronic Industries 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.