Correlation Between Lloyds Banking and NVIDIA

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

Diversification Opportunities for Lloyds Banking and NVIDIA

-0.68

Correlation Coefficient

Lloyds Banking  NVIDIA

Excellent diversification

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

Pair Corralation between Lloyds Banking and NVIDIA

Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 1.16 times more return on investment than NVIDIA. However, Lloyds Banking is 1.16 times more volatile than NVIDIA. It trades about 0.18 of its potential returns per unit of risk. NVIDIA is currently generating about -0.08 per unit of risk. If you would invest  4,950  in Lloyds Banking Group on December 28, 2024 and sell it today you would earn a total of  2,650  from holding Lloyds Banking Group or generate 53.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Lloyds Banking Group  vs.  NVIDIA

Lloyds Banking Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lloyds Banking Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Lloyds Banking showed solid returns over the last few months and may actually be approaching a breakup point.

NVIDIA

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lloyds Banking and NVIDIA

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

The idea behind Lloyds Banking Group and NVIDIA 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.