Correlation Between Lincoln National and Palomar Holdings

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

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

Diversification Opportunities for Lincoln National and Palomar Holdings

-0.32

Correlation Coefficient

Lincoln National  Palomar Holdings

Very good diversification

The 3 months correlation between Lincoln and Palomar is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln National and Palomar Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palomar Holdings 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 Palomar Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palomar Holdings has no effect on the direction of Lincoln National i.e., Lincoln National and Palomar Holdings go up and down completely randomly.

Pair Corralation between Lincoln National and Palomar Holdings

Assuming the 90 days trading horizon Lincoln National is expected to generate 0.36 times more return on investment than Palomar Holdings. However, Lincoln National is 2.74 times less risky than Palomar Holdings. It trades about -0.05 of its potential returns per unit of risk. Palomar Holdings is currently generating about -0.04 per unit of risk. If you would invest  2,780  in Lincoln National on October 10, 2024 and sell it today you would lose (19.00) from holding Lincoln National or give up 0.68% of portfolio value over 90 days.

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

Lincoln National  vs.  Palomar Holdings

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

Palomar Holdings

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Palomar Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lincoln National and Palomar Holdings

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

The idea behind Lincoln National and Palomar Holdings 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .