Correlation Between Prudential Financial and Lincoln National

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

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

Diversification Opportunities for Prudential Financial and Lincoln National

-0.55

Correlation Coefficient

Prudential Financial  Lincoln National

Excellent diversification

The 3 months correlation between Prudential and Lincoln is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Lincoln National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln National and Prudential Financial 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 Prudential Financial are associated (or correlated) with Lincoln National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln National has no effect on the direction of Prudential Financial i.e., Prudential Financial and Lincoln National go up and down completely randomly.

Pair Corralation between Prudential Financial and Lincoln National

Considering the 90-day investment horizon Prudential Financial is expected to under-perform the Lincoln National. But the stock apears to be less risky and, when comparing its historical volatility, Prudential Financial is 1.41 times less risky than Lincoln National. The stock trades about -0.05 of its potential returns per unit of risk. The Lincoln National is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,104  in Lincoln National on December 30, 2024 and sell it today you would earn a total of  464.00  from holding Lincoln National or generate 14.95% return on investment over 90 days.

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

Prudential Financial  vs.  Lincoln National

Prudential Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prudential Financial has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Lincoln National

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln National are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Lincoln National exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential Financial and Lincoln National

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

The idea behind Prudential Financial and Lincoln National 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.