Correlation Between Lloyds Banking and Caixabank

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

Diversification Opportunities for Lloyds Banking and Caixabank

0.94

Correlation Coefficient

Lloyds Banking  Caixabank

Almost no diversification

The 3 months correlation between Lloyds and Caixabank is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Caixabank SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caixabank SA ADR 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 Caixabank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caixabank SA ADR has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Caixabank go up and down completely randomly.

Pair Corralation between Lloyds Banking and Caixabank

Assuming the 90 days horizon Lloyds Banking is expected to generate 1.03 times less return on investment than Caixabank. In addition to that, Lloyds Banking is 1.63 times more volatile than Caixabank SA ADR. It trades about 0.16 of its total potential returns per unit of risk. Caixabank SA ADR is currently generating about 0.27 per unit of volatility. If you would invest  179.00  in Caixabank SA ADR on December 30, 2024 and sell it today you would earn a total of  81.00  from holding Caixabank SA ADR or generate 45.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.16%
Values	Daily Returns

Lloyds Banking Group  vs.  Caixabank SA ADR

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 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lloyds Banking reported solid returns over the last few months and may actually be approaching a breakup point.

Caixabank SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caixabank SA ADR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Caixabank showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lloyds Banking and Caixabank

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

The idea behind Lloyds Banking Group and Caixabank SA ADR 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.