Correlation Between Lincoln National and Jacobs Solutions

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

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

Diversification Opportunities for Lincoln National and Jacobs Solutions

0.62

Correlation Coefficient

Lincoln National  Jacobs Solutions

Poor diversification

The 3 months correlation between Lincoln and Jacobs is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln National and Jacobs Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jacobs Solutions 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 Jacobs Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jacobs Solutions has no effect on the direction of Lincoln National i.e., Lincoln National and Jacobs Solutions go up and down completely randomly.

Pair Corralation between Lincoln National and Jacobs Solutions

Assuming the 90 days trading horizon Lincoln National is expected to generate 0.8 times more return on investment than Jacobs Solutions. However, Lincoln National is 1.25 times less risky than Jacobs Solutions. It trades about -0.1 of its potential returns per unit of risk. Jacobs Solutions is currently generating about -0.12 per unit of risk. If you would invest  2,782  in Lincoln National on October 11, 2024 and sell it today you would lose (43.00) from holding Lincoln National or give up 1.55% of portfolio value over 90 days.

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

Lincoln National  vs.  Jacobs Solutions

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

Jacobs Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jacobs Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady forward-looking indicators, Jacobs Solutions is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with Lincoln National and Jacobs Solutions

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

The idea behind Lincoln National and Jacobs Solutions 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.