Correlation Between Lincoln National and Aflac Incorporated

Can any of the company-specific risk be diversified away by investing in both Lincoln National and Aflac Incorporated 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 National and Aflac Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lincoln National and Aflac Incorporated, you can compare the effects of market volatilities on Lincoln National and Aflac Incorporated 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 National with a short position of Aflac Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lincoln National and Aflac Incorporated.

Diversification Opportunities for Lincoln National and Aflac Incorporated

-0.14

Correlation Coefficient

Lincoln National  Aflac Incorporated

Good diversification

The 3 months correlation between Lincoln and Aflac is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln National and Aflac Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aflac Incorporated and Lincoln National 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 National are associated (or correlated) with Aflac Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aflac Incorporated has no effect on the direction of Lincoln National i.e., Lincoln National and Aflac Incorporated go up and down completely randomly.

Pair Corralation between Lincoln National and Aflac Incorporated

Assuming the 90 days trading horizon Lincoln National is expected to generate 22.92 times less return on investment than Aflac Incorporated. But when comparing it to its historical volatility, Lincoln National is 2.19 times less risky than Aflac Incorporated. It trades about 0.01 of its potential returns per unit of risk. Aflac Incorporated is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,212  in Aflac Incorporated on December 20, 2024 and sell it today you would earn a total of  634.00  from holding Aflac Incorporated or generate 6.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Lincoln National  vs.  Aflac Incorporated

Lincoln National

Risk-Adjusted Performance

Insignificant

Over the last 90 days Lincoln National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Lincoln National is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Aflac Incorporated

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aflac Incorporated are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, Aflac Incorporated may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Lincoln National and Aflac Incorporated

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

The idea behind Lincoln National and Aflac Incorporated 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.

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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.