Correlation Between Lincoln National and Brighthouse Financial

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

Diversification Opportunities for Lincoln National and Brighthouse Financial

0.07
  Correlation Coefficient

Significant diversification

The 3 months correlation between Lincoln and Brighthouse is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln National and Brighthouse Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighthouse 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 Brighthouse Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighthouse Financial has no effect on the direction of Lincoln National i.e., Lincoln National and Brighthouse Financial go up and down completely randomly.

Pair Corralation between Lincoln National and Brighthouse Financial

Considering the 90-day investment horizon Lincoln National is expected to generate 1.76 times more return on investment than Brighthouse Financial. However, Lincoln National is 1.76 times more volatile than Brighthouse Financial. It trades about 0.27 of its potential returns per unit of risk. Brighthouse Financial is currently generating about 0.26 per unit of risk. If you would invest  2,769  in Lincoln National on December 29, 2023 and sell it today you would earn a total of  439.00  from holding Lincoln National or generate 15.85% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Lincoln National  vs.  Brighthouse Financial

 Performance 
       Timeline  
Lincoln National 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln National are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lincoln National exhibited solid returns over the last few months and may actually be approaching a breakup point.
Brighthouse Financial 

Risk-Adjusted Performance

0 of 100

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

Lincoln National and Brighthouse Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lincoln National and Brighthouse Financial

The main advantage of trading using opposite Lincoln National and Brighthouse Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lincoln National position performs unexpectedly, Brighthouse 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 Brighthouse Financial will offset losses from the drop in Brighthouse Financial's long position.
The idea behind Lincoln National and Brighthouse 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.
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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