Correlation Between Lloyds Banking and Sumitomo Mitsui

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

Diversification Opportunities for Lloyds Banking and Sumitomo Mitsui

0.14

Correlation Coefficient

Lloyds Banking  Sumitomo Mitsui

Average diversification

The 3 months correlation between Lloyds and Sumitomo is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Sumitomo Mitsui Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Trust 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 Sumitomo Mitsui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Mitsui Trust has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Lloyds Banking and Sumitomo Mitsui

Assuming the 90 days horizon Lloyds Banking Group is expected to under-perform the Sumitomo Mitsui. In addition to that, Lloyds Banking is 1.04 times more volatile than Sumitomo Mitsui Trust. It trades about -0.05 of its total potential returns per unit of risk. Sumitomo Mitsui Trust is currently generating about -0.02 per unit of volatility. If you would invest  2,403  in Sumitomo Mitsui Trust on September 26, 2024 and sell it today you would lose (208.00) from holding Sumitomo Mitsui Trust or give up 8.66% of portfolio value over 90 days.

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

Lloyds Banking Group  vs.  Sumitomo Mitsui Trust

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 latest unsteady 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.

Sumitomo Mitsui Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Mitsui Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Sumitomo Mitsui 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 Sumitomo Mitsui

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

The idea behind Lloyds Banking Group and Sumitomo Mitsui Trust 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.