Correlation Between LLOYDS METALS and CEAT

Can any of the company-specific risk be diversified away by investing in both LLOYDS METALS and CEAT 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 METALS and CEAT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LLOYDS METALS AND and CEAT Limited, you can compare the effects of market volatilities on LLOYDS METALS and CEAT 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 METALS with a short position of CEAT. Check out your portfolio center. Please also check ongoing floating volatility patterns of LLOYDS METALS and CEAT.

Diversification Opportunities for LLOYDS METALS and CEAT

0.68

Correlation Coefficient

LLOYDS METALS  CEAT

Poor diversification

The 3 months correlation between LLOYDS and CEAT is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding LLOYDS METALS AND and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and LLOYDS METALS 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 METALS AND are associated (or correlated) with CEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEAT Limited has no effect on the direction of LLOYDS METALS i.e., LLOYDS METALS and CEAT go up and down completely randomly.

Pair Corralation between LLOYDS METALS and CEAT

Assuming the 90 days trading horizon LLOYDS METALS AND is expected to generate 1.48 times more return on investment than CEAT. However, LLOYDS METALS is 1.48 times more volatile than CEAT Limited. It trades about 0.06 of its potential returns per unit of risk. CEAT Limited is currently generating about -0.04 per unit of risk. If you would invest  116,730  in LLOYDS METALS AND on December 26, 2024 and sell it today you would earn a total of  11,190  from holding LLOYDS METALS AND or generate 9.59% return on investment over 90 days.

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

LLOYDS METALS AND  vs.  CEAT Limited

LLOYDS METALS AND

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LLOYDS METALS AND are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, LLOYDS METALS displayed solid returns over the last few months and may actually be approaching a breakup point.

CEAT Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days CEAT Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, CEAT is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with LLOYDS METALS and CEAT

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

The idea behind LLOYDS METALS AND and CEAT Limited 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.