Correlation Between Lincoln Electric and Arrow Electronics
Can any of the company-specific risk be diversified away by investing in both Lincoln Electric and Arrow Electronics 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 Arrow Electronics 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 Arrow Electronics, you can compare the effects of market volatilities on Lincoln Electric and Arrow Electronics 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 Arrow Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lincoln Electric and Arrow Electronics.
Diversification Opportunities for Lincoln Electric and Arrow Electronics
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Lincoln and Arrow is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics 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 Arrow Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Electronics has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Arrow Electronics go up and down completely randomly.
Pair Corralation between Lincoln Electric and Arrow Electronics
Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 1.01 times more return on investment than Arrow Electronics. However, Lincoln Electric is 1.01 times more volatile than Arrow Electronics. It trades about 0.06 of its potential returns per unit of risk. Arrow Electronics is currently generating about 0.02 per unit of risk. If you would invest 14,244 in Lincoln Electric Holdings on August 24, 2024 and sell it today you would earn a total of 7,108 from holding Lincoln Electric Holdings or generate 49.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lincoln Electric Holdings vs. Arrow Electronics
Performance |
| Timeline |
| Lincoln Electric Holdings |
| Arrow Electronics |
Lincoln Electric and Arrow Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lincoln Electric and Arrow Electronics
The main advantage of trading using opposite Lincoln Electric and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lincoln Electric position performs unexpectedly, Arrow Electronics 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 Arrow Electronics will offset losses from the drop in Arrow Electronics' long position.| Lincoln Electric vs. Kennametal | Lincoln Electric vs. Toro Co | Lincoln Electric vs. Snap On | Lincoln Electric vs. RBC Bearings Incorporated |
| Arrow Electronics vs. Insight Enterprises | Arrow Electronics vs. Synnex | Arrow Electronics vs. Climb Global Solutions | Arrow Electronics vs. ScanSource |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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