Correlation Between Unilever PLC and Lincoln Electric

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

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

Diversification Opportunities for Unilever PLC and Lincoln Electric

-0.82

Correlation Coefficient

Unilever PLC  Lincoln Electric

Pay attention - limited upside

The 3 months correlation between Unilever and Lincoln is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC ADR 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 Unilever PLC 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 Unilever PLC ADR 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 Unilever PLC i.e., Unilever PLC and Lincoln Electric go up and down completely randomly.

Pair Corralation between Unilever PLC and Lincoln Electric

Allowing for the 90-day total investment horizon Unilever PLC ADR is expected to under-perform the Lincoln Electric. But the stock apears to be less risky and, when comparing its historical volatility, Unilever PLC ADR is 1.81 times less risky than Lincoln Electric. The stock trades about -0.16 of its potential returns per unit of risk. The Lincoln Electric Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  18,477  in Lincoln Electric Holdings on September 20, 2024 and sell it today you would earn a total of  1,438  from holding Lincoln Electric Holdings or generate 7.78% return on investment over 90 days.

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

Unilever PLC ADR  vs.  Lincoln Electric Holdings

Unilever PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Lincoln Electric Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Lincoln Electric may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Unilever PLC and Lincoln Electric

The main advantage of trading using opposite Unilever PLC and Lincoln Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unilever PLC 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 Unilever PLC ADR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.