Correlation Between Lloyds Banking and Erste Group

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

Diversification Opportunities for Lloyds Banking and Erste Group

-0.33

Correlation Coefficient

Lloyds Banking  Erste Group

Very good diversification

The 3 months correlation between Lloyds and Erste is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Erste Group Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erste Group Bank 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 Erste Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erste Group Bank has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Erste Group go up and down completely randomly.

Pair Corralation between Lloyds Banking and Erste Group

Assuming the 90 days horizon Lloyds Banking Group is expected to under-perform the Erste Group. In addition to that, Lloyds Banking is 2.31 times more volatile than Erste Group Bank. It trades about -0.04 of its total potential returns per unit of risk. Erste Group Bank is currently generating about 0.15 per unit of volatility. If you would invest  2,682  in Erste Group Bank on September 25, 2024 and sell it today you would earn a total of  395.00  from holding Erste Group Bank or generate 14.73% return on investment over 90 days.

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

Lloyds Banking Group  vs.  Erste Group Bank

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Erste Group Bank

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Erste Group Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak fundamental indicators, Erste Group showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lloyds Banking and Erste Group

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

The idea behind Lloyds Banking Group and Erste Group Bank 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.