Correlation Between Lloyds Banking and GB Group

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

Diversification Opportunities for Lloyds Banking and GB Group

-0.63

Correlation Coefficient

Lloyds Banking  GB Group

Excellent diversification

The 3 months correlation between Lloyds and GBG is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and GB Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GB Group plc 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 GB Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GB Group plc has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and GB Group go up and down completely randomly.

Pair Corralation between Lloyds Banking and GB Group

Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 1.15 times more return on investment than GB Group. However, Lloyds Banking is 1.15 times more volatile than GB Group plc. It trades about 0.27 of its potential returns per unit of risk. GB Group plc is currently generating about -0.11 per unit of risk. If you would invest  5,442  in Lloyds Banking Group on December 30, 2024 and sell it today you would earn a total of  1,898  from holding Lloyds Banking Group or generate 34.88% return on investment over 90 days.

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

Lloyds Banking Group  vs.  GB Group plc

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 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Lloyds Banking unveiled solid returns over the last few months and may actually be approaching a breakup point.

GB Group plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days GB Group plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Lloyds Banking and GB Group

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

The idea behind Lloyds Banking Group and GB Group plc 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.