Correlation Between Lincoln Electric and Summit Materials
Can any of the company-specific risk be diversified away by investing in both Lincoln Electric and Summit Materials 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 Summit Materials 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 Summit Materials, you can compare the effects of market volatilities on Lincoln Electric and Summit Materials 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 Summit Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lincoln Electric and Summit Materials.
Diversification Opportunities for Lincoln Electric and Summit Materials
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lincoln and Summit is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Summit Materials go up and down completely randomly.
Pair Corralation between Lincoln Electric and Summit Materials
Given the investment horizon of 90 days Lincoln Electric is expected to generate 1.09 times less return on investment than Summit Materials. In addition to that, Lincoln Electric is 1.05 times more volatile than Summit Materials. It trades about 0.19 of its total potential returns per unit of risk. Summit Materials is currently generating about 0.22 per unit of volatility. If you would invest 4,563 in Summit Materials on August 29, 2024 and sell it today you would earn a total of 522.00 from holding Summit Materials or generate 11.44% 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. Summit Materials
Performance |
| Timeline |
| Lincoln Electric Holdings |
| Summit Materials |
Lincoln Electric and Summit Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lincoln Electric and Summit Materials
The main advantage of trading using opposite Lincoln Electric and Summit Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lincoln Electric position performs unexpectedly, Summit Materials 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 Summit Materials will offset losses from the drop in Summit Materials' long position.| Lincoln Electric vs. Kennametal | Lincoln Electric vs. Toro Co | Lincoln Electric vs. Snap On | Lincoln Electric vs. RBC Bearings Incorporated |
| Summit Materials vs. Holcim | Summit Materials vs. Lafargeholcim Ltd ADR | Summit Materials vs. The Monarch Cement |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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