Correlation Between Lloyds Banking and Cognizant Technology

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

Diversification Opportunities for Lloyds Banking and Cognizant Technology

0.08

Correlation Coefficient

Lloyds Banking  Cognizant Technology

Significant diversification

The 3 months correlation between Lloyds and Cognizant is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology 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 Cognizant Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cognizant Technology has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Cognizant Technology go up and down completely randomly.

Pair Corralation between Lloyds Banking and Cognizant Technology

Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 1.78 times more return on investment than Cognizant Technology. However, Lloyds Banking is 1.78 times more volatile than Cognizant Technology Solutions. It trades about 0.13 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.07 per unit of risk. If you would invest  1,005  in Lloyds Banking Group on October 24, 2024 and sell it today you would earn a total of  810.00  from holding Lloyds Banking Group or generate 80.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	77.02%
Values	Daily Returns

Lloyds Banking Group  vs.  Cognizant Technology Solutions

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.

Cognizant Technology

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cognizant Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lloyds Banking and Cognizant Technology

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

The idea behind Lloyds Banking Group and Cognizant Technology Solutions 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.