Correlation Between Optima Health and Lloyds Banking

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

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

Diversification Opportunities for Optima Health and Lloyds Banking

-0.69

Correlation Coefficient

Optima Health  Lloyds Banking

Excellent diversification

The 3 months correlation between Optima and Lloyds is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Optima Health plc 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 Optima Health 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 Optima Health plc 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 Optima Health i.e., Optima Health and Lloyds Banking go up and down completely randomly.

Pair Corralation between Optima Health and Lloyds Banking

Assuming the 90 days trading horizon Optima Health is expected to generate 3.45 times less return on investment than Lloyds Banking. In addition to that, Optima Health is 5.66 times more volatile than Lloyds Banking Group. It trades about 0.01 of its total potential returns per unit of risk. Lloyds Banking Group is currently generating about 0.21 per unit of volatility. If you would invest  13,946  in Lloyds Banking Group on October 6, 2024 and sell it today you would earn a total of  379.00  from holding Lloyds Banking Group or generate 2.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Optima Health plc  vs.  Lloyds Banking Group

Optima Health plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optima Health plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Optima Health is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Optima Health and Lloyds Banking

The main advantage of trading using opposite Optima Health and Lloyds Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optima Health 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 Optima Health plc 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.