Correlation Between Lincoln National and PACCAR

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

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

Diversification Opportunities for Lincoln National and PACCAR

0.1

Correlation Coefficient

Lincoln National  PACCAR

Average diversification

The 3 months correlation between Lincoln and PACCAR is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln National and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc 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 PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Lincoln National i.e., Lincoln National and PACCAR go up and down completely randomly.

Pair Corralation between Lincoln National and PACCAR

Assuming the 90 days trading horizon Lincoln National is expected to generate 4.08 times less return on investment than PACCAR. But when comparing it to its historical volatility, Lincoln National is 1.92 times less risky than PACCAR. It trades about 0.03 of its potential returns per unit of risk. PACCAR Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  6,814  in PACCAR Inc on October 23, 2024 and sell it today you would earn a total of  4,201  from holding PACCAR Inc or generate 61.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Lincoln National  vs.  PACCAR Inc

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.

PACCAR Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Lincoln National and PACCAR

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

The idea behind Lincoln National and PACCAR Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.