Correlation Between Lloyds Banking and Nordea Bank

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

Diversification Opportunities for Lloyds Banking and Nordea Bank

0.47

Correlation Coefficient

Lloyds Banking  Nordea Bank

Very weak diversification

The 3 months correlation between Lloyds and Nordea is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Nordea Bank Abp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordea Bank Abp 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 Nordea Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordea Bank Abp has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Nordea Bank go up and down completely randomly.

Pair Corralation between Lloyds Banking and Nordea Bank

Assuming the 90 days horizon Lloyds Banking Group is expected to generate 2.44 times more return on investment than Nordea Bank. However, Lloyds Banking is 2.44 times more volatile than Nordea Bank Abp. It trades about 0.05 of its potential returns per unit of risk. Nordea Bank Abp is currently generating about -0.03 per unit of risk. If you would invest  55.00  in Lloyds Banking Group on September 25, 2024 and sell it today you would earn a total of  13.00  from holding Lloyds Banking Group or generate 23.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	84.62%
Values	Daily Returns

Lloyds Banking Group  vs.  Nordea Bank Abp

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.

Nordea Bank Abp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nordea Bank Abp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Lloyds Banking and Nordea Bank

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

The idea behind Lloyds Banking Group and Nordea Bank Abp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.