Correlation Between Lloyds Banking and Devon Energy

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

Diversification Opportunities for Lloyds Banking and Devon Energy

0.09

Correlation Coefficient

Lloyds Banking  Devon Energy

Significant diversification

The 3 months correlation between Lloyds and Devon is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Devon Energy go up and down completely randomly.

Pair Corralation between Lloyds Banking and Devon Energy

Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 1.07 times more return on investment than Devon Energy. However, Lloyds Banking is 1.07 times more volatile than Devon Energy. It trades about 0.08 of its potential returns per unit of risk. Devon Energy is currently generating about 0.01 per unit of risk. If you would invest  988.00  in Lloyds Banking Group on October 22, 2024 and sell it today you would earn a total of  738.00  from holding Lloyds Banking Group or generate 74.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.49%
Values	Daily Returns

Lloyds Banking Group  vs.  Devon Energy

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.

Devon Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Devon Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Devon Energy 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 Devon Energy

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

The idea behind Lloyds Banking Group and Devon Energy 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.