Correlation Between Lloyds Banking and BHP

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

Diversification Opportunities for Lloyds Banking and BHP

0.0

Correlation Coefficient

Lloyds Banking  BHP

Pay attention - limited upside

The 3 months correlation between Lloyds and BHP is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and BHP Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group 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 BHP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and BHP go up and down completely randomly.

Pair Corralation between Lloyds Banking and BHP

Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 1.03 times more return on investment than BHP. However, Lloyds Banking is 1.03 times more volatile than BHP Group. It trades about 0.04 of its potential returns per unit of risk. BHP Group is currently generating about 0.01 per unit of risk. If you would invest  4,088  in Lloyds Banking Group on October 10, 2024 and sell it today you would earn a total of  862.00  from holding Lloyds Banking Group or generate 21.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Lloyds Banking Group  vs.  BHP Group

Lloyds Banking Group

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Lloyds Banking Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Lloyds Banking is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

BHP Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHP Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, BHP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lloyds Banking and BHP

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

The idea behind Lloyds Banking Group and BHP Group 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.