Correlation Between SM Investments and Lincoln Educational

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

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

Diversification Opportunities for SM Investments and Lincoln Educational

0.47

Correlation Coefficient

SM Investments  Lincoln Educational

Very weak diversification

The 3 months correlation between SVTMF and Lincoln is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments and Lincoln Educational Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Educational and SM Investments 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 SM Investments 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 SM Investments i.e., SM Investments and Lincoln Educational go up and down completely randomly.

Pair Corralation between SM Investments and Lincoln Educational

Assuming the 90 days horizon SM Investments is expected to under-perform the Lincoln Educational. But the pink sheet apears to be less risky and, when comparing its historical volatility, SM Investments is 1.48 times less risky than Lincoln Educational. The pink sheet trades about -0.24 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  1,587  in Lincoln Educational Services on October 25, 2024 and sell it today you would lose (2.00) from holding Lincoln Educational Services or give up 0.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

SM Investments  vs.  Lincoln Educational Services

SM Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, SM Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Lincoln Educational

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Educational Services are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lincoln Educational exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Investments and Lincoln Educational

The main advantage of trading using opposite SM Investments and Lincoln Educational positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Investments 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 SM Investments 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.

Check out your portfolio center.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.