Correlation Between Erste Group and Lloyds Banking

Can any of the company-specific risk be diversified away by investing in both Erste Group and Lloyds Banking 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 Erste Group and Lloyds Banking into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Erste Group Bank and Lloyds Banking Group, you can compare the effects of market volatilities on Erste Group and Lloyds Banking 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 Erste Group with a short position of Lloyds Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of Erste Group and Lloyds Banking.

Diversification Opportunities for Erste Group and Lloyds Banking

0.69

Correlation Coefficient

Erste Group  Lloyds Banking

Poor diversification

The 3 months correlation between Erste and Lloyds is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and Lloyds Banking Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lloyds Banking Group and Erste Group 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 Erste Group Bank are associated (or correlated) with Lloyds Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lloyds Banking Group has no effect on the direction of Erste Group i.e., Erste Group and Lloyds Banking go up and down completely randomly.

Pair Corralation between Erste Group and Lloyds Banking

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 4.55 times more return on investment than Lloyds Banking. However, Erste Group is 4.55 times more volatile than Lloyds Banking Group. It trades about 0.19 of its potential returns per unit of risk. Lloyds Banking Group is currently generating about 0.17 per unit of risk. If you would invest  5,304  in Erste Group Bank on December 4, 2024 and sell it today you would earn a total of  1,271  from holding Erste Group Bank or generate 23.96% return on investment over 90 days.

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

Erste Group Bank  vs.  Lloyds Banking Group

Erste Group Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Erste Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lloyds Banking Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lloyds Banking Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Lloyds Banking is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Erste Group and Lloyds Banking

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

The idea behind Erste Group Bank and Lloyds Banking 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.