Correlation Between Lincoln Electric and ASICS

Can any of the company-specific risk be diversified away by investing in both Lincoln Electric and ASICS 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 ASICS 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 ASICS, you can compare the effects of market volatilities on Lincoln Electric and ASICS 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 ASICS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lincoln Electric and ASICS.

Diversification Opportunities for Lincoln Electric and ASICS

0.68

Correlation Coefficient

Lincoln Electric  ASICS

Poor diversification

The 3 months correlation between Lincoln and ASICS is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and ASICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASICS 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 ASICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASICS has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and ASICS go up and down completely randomly.

Pair Corralation between Lincoln Electric and ASICS

Given the investment horizon of 90 days Lincoln Electric is expected to generate 6.98 times less return on investment than ASICS. But when comparing it to its historical volatility, Lincoln Electric Holdings is 2.64 times less risky than ASICS. It trades about 0.08 of its potential returns per unit of risk. ASICS is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,983  in ASICS on January 26, 2024 and sell it today you would earn a total of  1,617  from holding ASICS or generate 54.21% 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.  ASICS

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 weak fundamental indicators, Lincoln Electric may actually be approaching a critical reversion point that can send shares even higher in May 2024.

ASICS

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ASICS are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, ASICS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lincoln Electric and ASICS

The main advantage of trading using opposite Lincoln Electric and ASICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lincoln Electric position performs unexpectedly, ASICS 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 ASICS will offset losses from the drop in ASICS's long position.

The idea behind Lincoln Electric Holdings and ASICS 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.