Correlation Between Lloyds Banking and Main Street

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

Diversification Opportunities for Lloyds Banking and Main Street

-0.51

Correlation Coefficient

Lloyds Banking  Main Street

Excellent diversification

The 3 months correlation between Lloyds and Main is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Main Street Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Street Financial 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 Main Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Street Financial has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Main Street go up and down completely randomly.

Pair Corralation between Lloyds Banking and Main Street

Assuming the 90 days horizon Lloyds Banking Group is expected to generate 1.96 times more return on investment than Main Street. However, Lloyds Banking is 1.96 times more volatile than Main Street Financial. It trades about 0.03 of its potential returns per unit of risk. Main Street Financial is currently generating about 0.0 per unit of risk. If you would invest  57.00  in Lloyds Banking Group on October 1, 2024 and sell it today you would earn a total of  10.00  from holding Lloyds Banking Group or generate 17.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	85.26%
Values	Daily Returns

Lloyds Banking Group  vs.  Main Street Financial

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.

Main Street Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Main Street is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Lloyds Banking and Main Street

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

The idea behind Lloyds Banking Group and Main Street Financial 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.