Correlation Between Lincoln National and CNA Financial

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

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

Diversification Opportunities for Lincoln National and CNA Financial

0.51

Correlation Coefficient

Lincoln National  CNA Financial

Very weak diversification

The 3 months correlation between Lincoln and CNA is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln National and CNA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNA Financial 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 CNA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNA Financial has no effect on the direction of Lincoln National i.e., Lincoln National and CNA Financial go up and down completely randomly.

Pair Corralation between Lincoln National and CNA Financial

Assuming the 90 days trading horizon Lincoln National is expected to under-perform the CNA Financial. But the preferred stock apears to be less risky and, when comparing its historical volatility, Lincoln National is 1.79 times less risky than CNA Financial. The preferred stock trades about -0.06 of its potential returns per unit of risk. The CNA Financial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,824  in CNA Financial on October 23, 2024 and sell it today you would earn a total of  84.00  from holding CNA Financial or generate 1.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Lincoln National  vs.  CNA Financial

Lincoln National

Risk-Adjusted Performance

0 of 100

Very Weak

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

CNA Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNA Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CNA Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lincoln National and CNA Financial

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

The idea behind Lincoln National and CNA Financial 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.