Correlation Between Lloyds Banking and EBay

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

Diversification Opportunities for Lloyds Banking and EBay

0.14

Correlation Coefficient

Lloyds Banking  EBay

Average diversification

The 3 months correlation between Lloyds and EBay is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and eBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eBay Inc 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 EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eBay Inc has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and EBay go up and down completely randomly.

Pair Corralation between Lloyds Banking and EBay

Assuming the 90 days trading horizon Lloyds Banking is expected to generate 27.67 times less return on investment than EBay. But when comparing it to its historical volatility, Lloyds Banking Group is 1.35 times less risky than EBay. It trades about 0.01 of its potential returns per unit of risk. eBay Inc is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  19,120  in eBay Inc on October 11, 2024 and sell it today you would earn a total of  1,609  from holding eBay Inc or generate 8.42% return on investment over 90 days.

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

Lloyds Banking Group  vs.  eBay Inc

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.

eBay Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in eBay Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EBay sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lloyds Banking and EBay

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

The idea behind Lloyds Banking Group and eBay Inc 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 Transaction History module to view history of all your transactions and understand their impact on performance.