Correlation Between PNC Financial and Lloyds Banking

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

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

Diversification Opportunities for PNC Financial and Lloyds Banking

-0.67

Correlation Coefficient

PNC Financial  Lloyds Banking

Excellent diversification

The 3 months correlation between PNC and Lloyds is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding PNC Financial Services 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 PNC Financial 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 PNC Financial Services 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 PNC Financial i.e., PNC Financial and Lloyds Banking go up and down completely randomly.

Pair Corralation between PNC Financial and Lloyds Banking

Considering the 90-day investment horizon PNC Financial Services is expected to under-perform the Lloyds Banking. But the stock apears to be less risky and, when comparing its historical volatility, PNC Financial Services is 1.49 times less risky than Lloyds Banking. The stock trades about -0.1 of its potential returns per unit of risk. The Lloyds Banking Group is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  275.00  in Lloyds Banking Group on December 26, 2024 and sell it today you would earn a total of  110.00  from holding Lloyds Banking Group or generate 40.0% return on investment over 90 days.

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

PNC Financial Services  vs.  Lloyds Banking Group

PNC Financial Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days PNC Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Lloyds Banking Group

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lloyds Banking Group are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Lloyds Banking reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PNC Financial and Lloyds Banking

The main advantage of trading using opposite PNC Financial and Lloyds Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PNC Financial 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 PNC Financial Services 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.