Correlation Between Lloyds Banking and KBC Group

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

Diversification Opportunities for Lloyds Banking and KBC Group

-0.27

Correlation Coefficient

Lloyds Banking  KBC Group

Very good diversification

The 3 months correlation between Lloyds and KBC is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and KBC Group NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KBC Group NV 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 KBC Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KBC Group NV has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and KBC Group go up and down completely randomly.

Pair Corralation between Lloyds Banking and KBC Group

Assuming the 90 days horizon Lloyds Banking is expected to generate 1.13 times less return on investment than KBC Group. In addition to that, Lloyds Banking is 1.66 times more volatile than KBC Group NV. It trades about 0.07 of its total potential returns per unit of risk. KBC Group NV is currently generating about 0.12 per unit of volatility. If you would invest  4,889  in KBC Group NV on September 23, 2024 and sell it today you would earn a total of  2,437  from holding KBC Group NV or generate 49.85% return on investment over 90 days.

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

Lloyds Banking Group  vs.  KBC Group NV

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 nearly stable basic indicators, Lloyds Banking is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

KBC Group NV

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KBC Group NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, KBC Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lloyds Banking and KBC Group

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

The idea behind Lloyds Banking Group and KBC Group NV 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.