Correlation Between Lincoln Electric and CF Industries
Can any of the company-specific risk be diversified away by investing in both Lincoln Electric and CF Industries 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 CF Industries 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 CF Industries Holdings, you can compare the effects of market volatilities on Lincoln Electric and CF Industries 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 CF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lincoln Electric and CF Industries.
Diversification Opportunities for Lincoln Electric and CF Industries
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lincoln and CF Industries is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings 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 CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and CF Industries go up and down completely randomly.
Pair Corralation between Lincoln Electric and CF Industries
Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 0.9 times more return on investment than CF Industries. However, Lincoln Electric Holdings is 1.11 times less risky than CF Industries. It trades about 0.06 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.01 per unit of risk. If you would invest 14,094 in Lincoln Electric Holdings on September 13, 2024 and sell it today you would earn a total of 6,814 from holding Lincoln Electric Holdings or generate 48.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lincoln Electric Holdings vs. CF Industries Holdings
Performance |
| Timeline |
| Lincoln Electric Holdings |
| CF Industries Holdings |
Lincoln Electric and CF Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lincoln Electric and CF Industries
The main advantage of trading using opposite Lincoln Electric and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lincoln Electric position performs unexpectedly, CF Industries 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 CF Industries will offset losses from the drop in CF Industries' long position.| Lincoln Electric vs. Kennametal | Lincoln Electric vs. Toro Co | Lincoln Electric vs. Snap On | Lincoln Electric vs. RBC Bearings Incorporated |
| CF Industries vs. Intrepid Potash | CF Industries vs. Corteva | CF Industries vs. ICL Israel Chemicals | CF Industries vs. The Mosaic |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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