Correlation Between SM Energy and Lloyds Banking

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

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

Diversification Opportunities for SM Energy and Lloyds Banking

-0.77

Correlation Coefficient

SM Energy  Lloyds Banking

Pay attention - limited upside

The 3 months correlation between 0KZA and Lloyds is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co 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 SM Energy 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 SM Energy Co 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 SM Energy i.e., SM Energy and Lloyds Banking go up and down completely randomly.

Pair Corralation between SM Energy and Lloyds Banking

Assuming the 90 days trading horizon SM Energy Co is expected to under-perform the Lloyds Banking. In addition to that, SM Energy is 10.59 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 0.09 per unit of volatility. If you would invest  14,100  in Lloyds Banking Group on September 27, 2024 and sell it today you would earn a total of  175.00  from holding Lloyds Banking Group or generate 1.24% return on investment over 90 days.

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

SM Energy Co  vs.  Lloyds Banking Group

SM Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SM Energy is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Lloyds Banking Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lloyds Banking Group are ranked lower than 6 (%) 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 SM Energy and Lloyds Banking

The main advantage of trading using opposite SM Energy and Lloyds Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy 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 SM Energy Co 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.