Correlation Between Lloyds Banking and Columbia Sportswear

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

Diversification Opportunities for Lloyds Banking and Columbia Sportswear

-0.38

Correlation Coefficient

Lloyds Banking  Columbia Sportswear

Very good diversification

The 3 months correlation between Lloyds and Columbia is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Columbia Sportswear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Sportswear 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 Columbia Sportswear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Sportswear has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Columbia Sportswear go up and down completely randomly.

Pair Corralation between Lloyds Banking and Columbia Sportswear

Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 1.28 times more return on investment than Columbia Sportswear. However, Lloyds Banking is 1.28 times more volatile than Columbia Sportswear. It trades about 0.21 of its potential returns per unit of risk. Columbia Sportswear is currently generating about -0.1 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  98.00  from holding Lloyds Banking Group or generate 38.89% 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.  Columbia Sportswear

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 16 (%) 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.

Columbia Sportswear

Risk-Adjusted Performance

Very Weak

Over the last 90 days Columbia Sportswear has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Lloyds Banking and Columbia Sportswear

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

The idea behind Lloyds Banking Group and Columbia Sportswear 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.