Correlation Between Lincoln National and Prudential Financial

Can any of the company-specific risk be diversified away by investing in both Lincoln National and Prudential 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 Prudential 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 Prudential Financial, you can compare the effects of market volatilities on Lincoln National and Prudential 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 Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lincoln National and Prudential Financial.

Diversification Opportunities for Lincoln National and Prudential Financial

0.82

Correlation Coefficient

Lincoln National  Prudential Financial

Very poor diversification

The 3 months correlation between Lincoln and Prudential is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln National and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential 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 Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Lincoln National i.e., Lincoln National and Prudential Financial go up and down completely randomly.

Pair Corralation between Lincoln National and Prudential Financial

Considering the 90-day investment horizon Lincoln National is expected to under-perform the Prudential Financial. In addition to that, Lincoln National is 1.05 times more volatile than Prudential Financial. It trades about -0.3 of its total potential returns per unit of risk. Prudential Financial is currently generating about -0.27 per unit of volatility. If you would invest  12,684  in Prudential Financial on September 18, 2024 and sell it today you would lose (796.00) from holding Prudential Financial or give up 6.28% of portfolio value over 90 days.

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

Lincoln National  vs.  Prudential Financial

Lincoln National

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln National are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Lincoln National may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Prudential Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Prudential Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Lincoln National and Prudential Financial

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

The idea behind Lincoln National and Prudential 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.