Correlation Between Aflac Incorporated and Lincoln National
Can any of the company-specific risk be diversified away by investing in both Aflac Incorporated 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 Aflac Incorporated and Lincoln National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aflac Incorporated and Lincoln National, you can compare the effects of market volatilities on Aflac Incorporated 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 Aflac Incorporated with a short position of Lincoln National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aflac Incorporated and Lincoln National.
Diversification Opportunities for Aflac Incorporated and Lincoln National
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Aflac and Lincoln is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Aflac Incorporated and Lincoln National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln National and Aflac Incorporated 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 Aflac Incorporated 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 Aflac Incorporated i.e., Aflac Incorporated and Lincoln National go up and down completely randomly.
Pair Corralation between Aflac Incorporated and Lincoln National
Considering the 90-day investment horizon Aflac Incorporated is expected to generate 1.96 times less return on investment than Lincoln National. But when comparing it to its historical volatility, Aflac Incorporated is 2.0 times less risky than Lincoln National. It trades about 0.07 of its potential returns per unit of risk. Lincoln National is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,026 in Lincoln National on January 25, 2024 and sell it today you would earn a total of 847.00 from holding Lincoln National or generate 41.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Aflac Incorporated vs. Lincoln National
Performance |
| Timeline |
| Aflac Incorporated |
| Lincoln National |
Aflac Incorporated and Lincoln National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aflac Incorporated and Lincoln National
The main advantage of trading using opposite Aflac Incorporated and Lincoln National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aflac Incorporated 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 Aflac Incorporated 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.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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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