Correlation Between Nike and Lincoln Electric
Can any of the company-specific risk be diversified away by investing in both Nike 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 Nike and Lincoln Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nike Inc and Lincoln Electric Holdings, you can compare the effects of market volatilities on Nike 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 Nike with a short position of Lincoln Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and Lincoln Electric.
Diversification Opportunities for Nike and Lincoln Electric
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Nike and Lincoln is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc 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 Nike 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 Nike Inc 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 Nike i.e., Nike and Lincoln Electric go up and down completely randomly.
Pair Corralation between Nike and Lincoln Electric
Considering the 90-day investment horizon Nike Inc is expected to under-perform the Lincoln Electric. But the stock apears to be less risky and, when comparing its historical volatility, Nike Inc is 1.04 times less risky than Lincoln Electric. The stock trades about -0.01 of its potential returns per unit of risk. The Lincoln Electric Holdings is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 17,593 in Lincoln Electric Holdings on September 12, 2024 and sell it today you would earn a total of 3,307 from holding Lincoln Electric Holdings or generate 18.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nike Inc vs. Lincoln Electric Holdings
Performance |
| Timeline |
| Nike Inc |
| Lincoln Electric Holdings |
Nike and Lincoln Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nike and Lincoln Electric
The main advantage of trading using opposite Nike and Lincoln Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike 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 Nike Inc 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.| Lincoln Electric vs. Kennametal | Lincoln Electric vs. Snap On | Lincoln Electric vs. Eastern Co | Lincoln Electric vs. Hillman Solutions Corp |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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