Correlation Between Lloyds Banking and Aurora Investment

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

Diversification Opportunities for Lloyds Banking and Aurora Investment

0.79

Correlation Coefficient

Lloyds Banking  Aurora Investment

Poor diversification

The 3 months correlation between Lloyds and Aurora is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Aurora Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Investment 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 Aurora Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Investment Trust has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Aurora Investment go up and down completely randomly.

Pair Corralation between Lloyds Banking and Aurora Investment

Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 1.37 times more return on investment than Aurora Investment. However, Lloyds Banking is 1.37 times more volatile than Aurora Investment Trust. It trades about 0.32 of its potential returns per unit of risk. Aurora Investment Trust is currently generating about 0.05 per unit of risk. If you would invest  5,282  in Lloyds Banking Group on December 2, 2024 and sell it today you would earn a total of  2,016  from holding Lloyds Banking Group or generate 38.17% return on investment over 90 days.

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

Lloyds Banking Group  vs.  Aurora Investment Trust

Lloyds Banking Group

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lloyds Banking Group are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Lloyds Banking unveiled solid returns over the last few months and may actually be approaching a breakup point.

Aurora Investment Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora Investment Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Aurora Investment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Lloyds Banking and Aurora Investment

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

The idea behind Lloyds Banking Group and Aurora Investment 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.