Correlation Between Lincoln Electric and Timken

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

Diversification Opportunities for Lincoln Electric and Timken

-0.38

Correlation Coefficient

Lincoln Electric  Timken

Very good diversification

The 3 months correlation between Lincoln and Timken is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company 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 Timken. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Timken Company has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Timken go up and down completely randomly.

Pair Corralation between Lincoln Electric and Timken

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 0.81 times more return on investment than Timken. However, Lincoln Electric Holdings is 1.24 times less risky than Timken. It trades about 0.14 of its potential returns per unit of risk. Timken Company is currently generating about -0.01 per unit of risk. If you would invest  18,608  in Lincoln Electric Holdings on September 1, 2024 and sell it today you would earn a total of  3,240  from holding Lincoln Electric Holdings or generate 17.41% return on investment over 90 days.

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

Lincoln Electric Holdings  vs.  Timken Company

Lincoln Electric Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Lincoln Electric displayed solid returns over the last few months and may actually be approaching a breakup point.

Timken Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Timken Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking signals, Timken is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Lincoln Electric and Timken

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

The idea behind Lincoln Electric Holdings and Timken Company 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.