Correlation Between Espey Mfg and Lincoln Electric

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

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

Diversification Opportunities for Espey Mfg and Lincoln Electric

0.4

Correlation Coefficient

Espey Mfg  Lincoln Electric

Very weak diversification

The 3 months correlation between Espey and Lincoln is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Espey Mfg Electronics 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 Espey Mfg 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 Espey Mfg Electronics 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 Espey Mfg i.e., Espey Mfg and Lincoln Electric go up and down completely randomly.

Pair Corralation between Espey Mfg and Lincoln Electric

Considering the 90-day investment horizon Espey Mfg Electronics is expected to generate 1.97 times more return on investment than Lincoln Electric. However, Espey Mfg is 1.97 times more volatile than Lincoln Electric Holdings. It trades about 0.08 of its potential returns per unit of risk. Lincoln Electric Holdings is currently generating about 0.0 per unit of risk. If you would invest  2,403  in Espey Mfg Electronics on September 26, 2024 and sell it today you would earn a total of  387.00  from holding Espey Mfg Electronics or generate 16.1% return on investment over 90 days.

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

Espey Mfg Electronics  vs.  Lincoln Electric Holdings

Espey Mfg Electronics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Espey Mfg Electronics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Espey Mfg reported solid returns over the last few months and may actually be approaching a breakup point.

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 Espey Mfg and Lincoln Electric

The main advantage of trading using opposite Espey Mfg and Lincoln Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Espey Mfg 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 Espey Mfg Electronics 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.

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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..