Correlation Between Lloyds Banking and Central Pacific

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

Diversification Opportunities for Lloyds Banking and Central Pacific

0.73

Correlation Coefficient

Lloyds Banking  Central Pacific

Poor diversification

The 3 months correlation between Lloyds and Central is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Central Pacific Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Pacific Financial 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 Central Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Pacific Financial has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Central Pacific go up and down completely randomly.

Pair Corralation between Lloyds Banking and Central Pacific

Considering the 90-day investment horizon Lloyds Banking Group is expected to generate 1.01 times more return on investment than Central Pacific. However, Lloyds Banking is 1.01 times more volatile than Central Pacific Financial. It trades about 0.32 of its potential returns per unit of risk. Central Pacific Financial is currently generating about 0.15 per unit of risk. If you would invest  206.00  in Lloyds Banking Group on February 16, 2024 and sell it today you would earn a total of  68.00  from holding Lloyds Banking Group or generate 33.01% return on investment over 90 days.

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

Lloyds Banking Group  vs.  Central Pacific Financial

Lloyds Banking Group

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lloyds Banking Group are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lloyds Banking reported solid returns over the last few months and may actually be approaching a breakup point.

Central Pacific Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Central Pacific Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Central Pacific reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lloyds Banking and Central Pacific

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

The idea behind Lloyds Banking Group and Central Pacific Financial 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.