Correlation Between Lloyds Banking and Itau Unibanco

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

Diversification Opportunities for Lloyds Banking and Itau Unibanco

0.64

Correlation Coefficient

Lloyds Banking  Itau Unibanco

Poor diversification

The 3 months correlation between Lloyds and Itau is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Itau Unibanco Banco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itau Unibanco Banco 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 Itau Unibanco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itau Unibanco Banco has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Itau Unibanco go up and down completely randomly.

Pair Corralation between Lloyds Banking and Itau Unibanco

Assuming the 90 days horizon Lloyds Banking Group is expected to generate 2.18 times more return on investment than Itau Unibanco. However, Lloyds Banking is 2.18 times more volatile than Itau Unibanco Banco. It trades about -0.01 of its potential returns per unit of risk. Itau Unibanco Banco is currently generating about -0.16 per unit of risk. If you would invest  69.00  in Lloyds Banking Group on October 1, 2024 and sell it today you would lose (2.00) from holding Lloyds Banking Group or give up 2.9% of portfolio value over 90 days.

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

Lloyds Banking Group  vs.  Itau Unibanco Banco

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 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.

Itau Unibanco Banco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Itau Unibanco Banco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lloyds Banking and Itau Unibanco

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

The idea behind Lloyds Banking Group and Itau Unibanco Banco 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.