Correlation Between Lloyds Banking and Central Pacific

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

Diversification Opportunities for Lloyds Banking and Central Pacific

-0.52

Correlation Coefficient

Lloyds Banking  Central Pacific

Excellent diversification

The 3 months correlation between Lloyds and Central is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Central Pacific Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Pacific Financial 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 Central Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Pacific Financial has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Central Pacific go up and down completely randomly.

Pair Corralation between Lloyds Banking and Central Pacific

Considering the 90-day investment horizon Lloyds Banking Group is expected to under-perform the Central Pacific. But the stock apears to be less risky and, when comparing its historical volatility, Lloyds Banking Group is 1.48 times less risky than Central Pacific. The stock trades about -0.08 of its potential returns per unit of risk. The Central Pacific Financial is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,731  in Central Pacific Financial on September 4, 2024 and sell it today you would earn a total of  410.00  from holding Central Pacific Financial or generate 15.01% return on investment over 90 days.

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

Lloyds Banking Group  vs.  Central Pacific Financial

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 weak 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.

Central Pacific Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Pacific Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Central Pacific reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lloyds Banking and Central Pacific

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

The idea behind Lloyds Banking Group and Central Pacific Financial 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.