Correlation Between Lloyds Banking and Safety Insurance

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

Diversification Opportunities for Lloyds Banking and Safety Insurance

-0.5

Correlation Coefficient

Lloyds Banking  Safety Insurance

Very good diversification

The 3 months correlation between Lloyds and Safety is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Safety Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety Insurance 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 Safety Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safety Insurance has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Safety Insurance go up and down completely randomly.

Pair Corralation between Lloyds Banking and Safety Insurance

Assuming the 90 days trading horizon Lloyds Banking Group is expected to under-perform the Safety Insurance. In addition to that, Lloyds Banking is 1.08 times more volatile than Safety Insurance Group. It trades about -0.04 of its total potential returns per unit of risk. Safety Insurance Group is currently generating about 0.04 per unit of volatility. If you would invest  8,009  in Safety Insurance Group on September 12, 2024 and sell it today you would earn a total of  91.00  from holding Safety Insurance Group or generate 1.14% return on investment over 90 days.

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

Lloyds Banking Group  vs.  Safety Insurance Group

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

Safety Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Safety Insurance Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Safety Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lloyds Banking and Safety Insurance

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

The idea behind Lloyds Banking Group and Safety Insurance Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.