Correlation Between Strategic Education and Lincoln Educational

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

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

Diversification Opportunities for Strategic Education and Lincoln Educational

0.34

Correlation Coefficient

Strategic Education  Lincoln Educational

Weak diversification

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

Pair Corralation between Strategic Education and Lincoln Educational

Given the investment horizon of 90 days Strategic Education is expected to under-perform the Lincoln Educational. But the stock apears to be less risky and, when comparing its historical volatility, Strategic Education is 1.3 times less risky than Lincoln Educational. The stock trades about -0.03 of its potential returns per unit of risk. The Lincoln Educational Services is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,581  in Lincoln Educational Services on December 30, 2024 and sell it today you would lose (10.00) from holding Lincoln Educational Services or give up 0.63% of portfolio value over 90 days.

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

Strategic Education  vs.  Lincoln Educational Services

Strategic Education

Risk-Adjusted Performance

Very Weak

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

Lincoln Educational

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Educational Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Lincoln Educational is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Strategic Education and Lincoln Educational

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

The idea behind Strategic Education and Lincoln Educational Services 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.