Correlation Between Nuvalent and Lincoln Electric

Can any of the company-specific risk be diversified away by investing in both Nuvalent and Lincoln Electric 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 Nuvalent and Lincoln Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nuvalent and Lincoln Electric Holdings, you can compare the effects of market volatilities on Nuvalent and Lincoln Electric 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 Nuvalent with a short position of Lincoln Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nuvalent and Lincoln Electric.

Diversification Opportunities for Nuvalent and Lincoln Electric

0.24

Correlation Coefficient

Nuvalent  Lincoln Electric

Modest diversification

The 3 months correlation between Nuvalent and Lincoln is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Nuvalent and Lincoln Electric Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Electric Holdings and Nuvalent 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 Nuvalent are associated (or correlated) with Lincoln Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln Electric Holdings has no effect on the direction of Nuvalent i.e., Nuvalent and Lincoln Electric go up and down completely randomly.

Pair Corralation between Nuvalent and Lincoln Electric

Given the investment horizon of 90 days Nuvalent is expected to generate 2.2 times more return on investment than Lincoln Electric. However, Nuvalent is 2.2 times more volatile than Lincoln Electric Holdings. It trades about 0.07 of its potential returns per unit of risk. Lincoln Electric Holdings is currently generating about 0.03 per unit of risk. If you would invest  3,088  in Nuvalent on October 11, 2024 and sell it today you would earn a total of  4,737  from holding Nuvalent or generate 153.4% return on investment over 90 days.

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

Nuvalent  vs.  Lincoln Electric Holdings

Nuvalent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuvalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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.

Pair Trading with Nuvalent and Lincoln Electric

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

The idea behind Nuvalent and Lincoln Electric Holdings 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.