Correlation Between Lincoln Electric and Corpay

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

Diversification Opportunities for Lincoln Electric and Corpay

0.89

Correlation Coefficient

Lincoln Electric  Corpay

Very poor diversification

The 3 months correlation between Lincoln and Corpay is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Corpay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corpay Inc 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 Corpay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corpay Inc has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Corpay go up and down completely randomly.

Pair Corralation between Lincoln Electric and Corpay

Given the investment horizon of 90 days Lincoln Electric is expected to generate 1.69 times less return on investment than Corpay. In addition to that, Lincoln Electric is 1.18 times more volatile than Corpay Inc. It trades about 0.16 of its total potential returns per unit of risk. Corpay Inc is currently generating about 0.32 per unit of volatility. If you would invest  32,967  in Corpay Inc on September 5, 2024 and sell it today you would earn a total of  4,491  from holding Corpay Inc or generate 13.62% return on investment over 90 days.

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

Lincoln Electric Holdings  vs.  Corpay Inc

Lincoln Electric Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Lincoln Electric displayed solid returns over the last few months and may actually be approaching a breakup point.

Corpay Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Corpay Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Corpay showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lincoln Electric and Corpay

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

The idea behind Lincoln Electric Holdings and Corpay Inc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.