Correlation Between Lloyds Banking and Check Point

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

Diversification Opportunities for Lloyds Banking and Check Point

0.73

Correlation Coefficient

Lloyds Banking  Check Point

Poor diversification

The 3 months correlation between Lloyds and Check is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Check Point Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Check Point Software 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 Check Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Check Point Software has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Check Point go up and down completely randomly.

Pair Corralation between Lloyds Banking and Check Point

Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 1.64 times more return on investment than Check Point. However, Lloyds Banking is 1.64 times more volatile than Check Point Software. It trades about 0.2 of its potential returns per unit of risk. Check Point Software is currently generating about 0.17 per unit of risk. If you would invest  252.00  in Lloyds Banking Group on December 30, 2024 and sell it today you would earn a total of  92.00  from holding Lloyds Banking Group or generate 36.51% return on investment over 90 days.

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

Lloyds Banking Group  vs.  Check Point Software

Lloyds Banking Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lloyds Banking Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Lloyds Banking reported solid returns over the last few months and may actually be approaching a breakup point.

Check Point Software

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Check Point displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lloyds Banking and Check Point

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

The idea behind Lloyds Banking Group and Check Point Software 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.