Correlation Between Lloyds Banking and Summit Bancshares

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

Diversification Opportunities for Lloyds Banking and Summit Bancshares

-0.45

Correlation Coefficient

Lloyds Banking  Summit Bancshares

Very good diversification

The 3 months correlation between Lloyds and Summit is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Summit Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Bancshares 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 Summit Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Bancshares has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Summit Bancshares go up and down completely randomly.

Pair Corralation between Lloyds Banking and Summit Bancshares

Assuming the 90 days horizon Lloyds Banking Group is expected to under-perform the Summit Bancshares. In addition to that, Lloyds Banking is 3.12 times more volatile than Summit Bancshares. It trades about -0.04 of its total potential returns per unit of risk. Summit Bancshares is currently generating about -0.05 per unit of volatility. If you would invest  4,458  in Summit Bancshares on September 22, 2024 and sell it today you would lose (47.00) from holding Summit Bancshares or give up 1.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Lloyds Banking Group  vs.  Summit Bancshares

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.

Summit Bancshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Summit Bancshares is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Lloyds Banking and Summit Bancshares

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

The idea behind Lloyds Banking Group and Summit Bancshares 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.