Correlation Between Lincoln Electric and Deckers Outdoor

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

Diversification Opportunities for Lincoln Electric and Deckers Outdoor

0.86

Correlation Coefficient

Lincoln Electric  Deckers Outdoor

Very poor diversification

The 3 months correlation between Lincoln and Deckers is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Deckers Outdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deckers Outdoor 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 Deckers Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deckers Outdoor has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Deckers Outdoor go up and down completely randomly.

Pair Corralation between Lincoln Electric and Deckers Outdoor

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 0.53 times more return on investment than Deckers Outdoor. However, Lincoln Electric Holdings is 1.88 times less risky than Deckers Outdoor. It trades about -0.25 of its potential returns per unit of risk. Deckers Outdoor is currently generating about -0.21 per unit of risk. If you would invest  25,230  in Lincoln Electric Holdings on January 26, 2024 and sell it today you would lose (1,469) from holding Lincoln Electric Holdings or give up 5.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Lincoln Electric Holdings  vs.  Deckers Outdoor

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.

Deckers Outdoor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Deckers Outdoor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, Deckers Outdoor may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Lincoln Electric and Deckers Outdoor

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

The idea behind Lincoln Electric Holdings and Deckers Outdoor 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 CEOs Directory module to screen CEOs from public companies around the world.