Correlation Between Lincoln Electric and Acme United

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

Diversification Opportunities for Lincoln Electric and Acme United

0.49

Correlation Coefficient

Lincoln Electric  Acme United

Very weak diversification

The 3 months correlation between Lincoln and Acme is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Acme United in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acme United 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 Acme United. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acme United has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Acme United go up and down completely randomly.

Pair Corralation between Lincoln Electric and Acme United

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 0.57 times more return on investment than Acme United. However, Lincoln Electric Holdings is 1.76 times less risky than Acme United. It trades about -0.62 of its potential returns per unit of risk. Acme United is currently generating about -0.39 per unit of risk. If you would invest  21,994  in Lincoln Electric Holdings on September 24, 2024 and sell it today you would lose (3,019) from holding Lincoln Electric Holdings or give up 13.73% of portfolio value over 90 days.

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

Lincoln Electric Holdings  vs.  Acme United

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.

Acme United

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Acme United has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Lincoln Electric and Acme United

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

The idea behind Lincoln Electric Holdings and Acme United 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.