Correlation Between Lincoln Electric and Axcella Health

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

Diversification Opportunities for Lincoln Electric and Axcella Health

-0.66
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Lincoln and Axcella is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and Axcella Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axcella Health 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 Axcella Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axcella Health has no effect on the direction of Lincoln Electric i.e., Lincoln Electric and Axcella Health go up and down completely randomly.

Pair Corralation between Lincoln Electric and Axcella Health

Given the investment horizon of 90 days Lincoln Electric Holdings is expected to generate 0.24 times more return on investment than Axcella Health. However, Lincoln Electric Holdings is 4.22 times less risky than Axcella Health. It trades about 0.04 of its potential returns per unit of risk. Axcella Health is currently generating about -0.03 per unit of risk. If you would invest  11,624  in Lincoln Electric Holdings on September 6, 2022 and sell it today you would earn a total of  3,199  from holding Lincoln Electric Holdings or generate 27.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Lincoln Electric Holdings  vs.  Axcella Health

 Performance (%) 
       Timeline  
Lincoln Electric Holdings 
Lincoln Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Lincoln Electric may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Lincoln Price Channel

Axcella Health 
Axcella Performance
0 of 100
Over the last 90 days Axcella Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in January 2023. The current disturbance may also be a sign of long term up-swing for the company investors.

Axcella Price Channel

Lincoln Electric and Axcella Health Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lincoln Electric and Axcella Health

The main advantage of trading using opposite Lincoln Electric and Axcella Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lincoln Electric position performs unexpectedly, Axcella Health 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 Axcella Health will offset losses from the drop in Axcella Health's long position.
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The idea behind Lincoln Electric Holdings and Axcella Health 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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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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

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