Correlation Between Microsoft and Lloyds Banking

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

By analyzing existing cross correlation between Microsoft and Lloyds Banking Group, you can compare the effects of market volatilities on Microsoft and Lloyds Banking 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 Microsoft with a short position of Lloyds Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Lloyds Banking.

Diversification Opportunities for Microsoft and Lloyds Banking

-0.49

Correlation Coefficient

Microsoft  Lloyds Banking

Very good diversification

The 3 months correlation between Microsoft and Lloyds is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Lloyds Banking Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lloyds Banking Group and Microsoft 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 Microsoft are associated (or correlated) with Lloyds Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lloyds Banking Group has no effect on the direction of Microsoft i.e., Microsoft and Lloyds Banking go up and down completely randomly.

Pair Corralation between Microsoft and Lloyds Banking

Assuming the 90 days trading horizon Microsoft is expected to generate 0.77 times more return on investment than Lloyds Banking. However, Microsoft is 1.3 times less risky than Lloyds Banking. It trades about 0.1 of its potential returns per unit of risk. Lloyds Banking Group is currently generating about -0.03 per unit of risk. If you would invest  39,052  in Microsoft on September 17, 2024 and sell it today you would earn a total of  3,623  from holding Microsoft or generate 9.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Microsoft  vs.  Lloyds Banking Group

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 nearly stable basic indicators, Lloyds Banking is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Lloyds Banking

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

The idea behind Microsoft and Lloyds Banking 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.