Correlation Between Lincoln National and CHEVRON

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

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

Diversification Opportunities for Lincoln National and CHEVRON

0.34

Correlation Coefficient

Lincoln National  CHEVRON

Weak diversification

The 3 months correlation between Lincoln and CHEVRON is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln National and CHEVRON P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHEVRON P 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 CHEVRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHEVRON P has no effect on the direction of Lincoln National i.e., Lincoln National and CHEVRON go up and down completely randomly.

Pair Corralation between Lincoln National and CHEVRON

Assuming the 90 days trading horizon Lincoln National is expected to generate 3.21 times more return on investment than CHEVRON. However, Lincoln National is 3.21 times more volatile than CHEVRON P. It trades about 0.04 of its potential returns per unit of risk. CHEVRON P is currently generating about 0.02 per unit of risk. If you would invest  2,394  in Lincoln National on October 10, 2024 and sell it today you would earn a total of  367.00  from holding Lincoln National or generate 15.33% return on investment over 90 days.

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

Lincoln National  vs.  CHEVRON P

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.

CHEVRON P

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Lincoln National and CHEVRON

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

The idea behind Lincoln National and CHEVRON P 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.