Correlation Between Lincoln National and Federal Life

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Can any of the company-specific risk be diversified away by investing in both Lincoln National and Federal Life 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 Federal Life into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lincoln National and Federal Life Group, you can compare the effects of market volatilities on Lincoln National and Federal Life 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 Federal Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lincoln National and Federal Life.

Diversification Opportunities for Lincoln National and Federal Life

-0.11
  Correlation Coefficient

Good diversification

The 3 months correlation between Lincoln and Federal is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln National and Federal Life Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Life Group 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 Federal Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Life Group has no effect on the direction of Lincoln National i.e., Lincoln National and Federal Life go up and down completely randomly.

Pair Corralation between Lincoln National and Federal Life

Considering the 90-day investment horizon Lincoln National is expected to under-perform the Federal Life. But the stock apears to be less risky and, when comparing its historical volatility, Lincoln National is 1.13 times less risky than Federal Life. The stock trades about -0.02 of its potential returns per unit of risk. The Federal Life Group is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,375  in Federal Life Group on December 29, 2023 and sell it today you would lose (293.00) from holding Federal Life Group or give up 21.31% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy42.71%
ValuesDaily Returns

Lincoln National  vs.  Federal Life Group

 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.
Federal Life Group 

Risk-Adjusted Performance

0 of 100

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

Lincoln National and Federal Life Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lincoln National and Federal Life

The main advantage of trading using opposite Lincoln National and Federal Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lincoln National position performs unexpectedly, Federal Life 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 Federal Life will offset losses from the drop in Federal Life's long position.
The idea behind Lincoln National and Federal Life Group 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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