Correlation Between Lloyds Banking and Bristol Myers

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

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

Diversification Opportunities for Lloyds Banking and Bristol Myers

-0.42

Correlation Coefficient

Lloyds Banking  Bristol Myers

Very good diversification

The 3 months correlation between Lloyds and Bristol is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Bristol Myers Squibb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bristol Myers Squibb and Lloyds Banking 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 Lloyds Banking Group are associated (or correlated) with Bristol Myers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bristol Myers Squibb has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Bristol Myers go up and down completely randomly.

Pair Corralation between Lloyds Banking and Bristol Myers

Assuming the 90 days trading horizon Lloyds Banking is expected to generate 68.28 times less return on investment than Bristol Myers. But when comparing it to its historical volatility, Lloyds Banking Group is 1.2 times less risky than Bristol Myers. It trades about 0.0 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  28,750  in Bristol Myers Squibb on October 8, 2024 and sell it today you would earn a total of  6,842  from holding Bristol Myers Squibb or generate 23.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.92%
Values	Daily Returns

Lloyds Banking Group  vs.  Bristol Myers Squibb

Lloyds Banking Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lloyds Banking Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lloyds Banking is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bristol Myers Squibb

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Bristol Myers Squibb has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Bristol Myers sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lloyds Banking and Bristol Myers

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

The idea behind Lloyds Banking Group and Bristol Myers Squibb 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.

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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 Stocks Directory module to find actively traded stocks across global markets.