Correlation Between Lloyds Banking and Raytheon Technologies

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

Diversification Opportunities for Lloyds Banking and Raytheon Technologies

-0.07

Correlation Coefficient

Lloyds Banking  Raytheon Technologies

Good diversification

The 3 months correlation between Lloyds and Raytheon is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Raytheon Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytheon Technologies 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 Raytheon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytheon Technologies has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Raytheon Technologies go up and down completely randomly.

Pair Corralation between Lloyds Banking and Raytheon Technologies

Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 1.5 times more return on investment than Raytheon Technologies. However, Lloyds Banking is 1.5 times more volatile than Raytheon Technologies. It trades about 0.05 of its potential returns per unit of risk. Raytheon Technologies is currently generating about 0.05 per unit of risk. If you would invest  1,124  in Lloyds Banking Group on September 25, 2024 and sell it today you would earn a total of  567.00  from holding Lloyds Banking Group or generate 50.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.4%
Values	Daily Returns

Lloyds Banking Group  vs.  Raytheon Technologies

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 somewhat strong basic indicators, Lloyds Banking is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Raytheon Technologies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Raytheon Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lloyds Banking and Raytheon Technologies

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

The idea behind Lloyds Banking Group and Raytheon Technologies 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.