Correlation Between Lloyds Banking and Micron Technology

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

Diversification Opportunities for Lloyds Banking and Micron Technology

-0.64

Correlation Coefficient

Lloyds Banking  Micron Technology

Excellent diversification

The 3 months correlation between Lloyds and Micron is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology 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 Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Micron Technology go up and down completely randomly.

Pair Corralation between Lloyds Banking and Micron Technology

Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 0.04 times more return on investment than Micron Technology. However, Lloyds Banking Group is 23.97 times less risky than Micron Technology. It trades about 0.43 of its potential returns per unit of risk. Micron Technology is currently generating about -0.11 per unit of risk. If you would invest  13,895  in Lloyds Banking Group on October 7, 2024 and sell it today you would earn a total of  430.00  from holding Lloyds Banking Group or generate 3.09% 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.  Micron Technology

Lloyds Banking Group

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lloyds Banking Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Lloyds Banking is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Micron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Lloyds Banking and Micron Technology

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

The idea behind Lloyds Banking Group and Micron Technology 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.