Correlation Between Lloyds Banking and Farmers Bancorp

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

Diversification Opportunities for Lloyds Banking and Farmers Bancorp

-0.61

Correlation Coefficient

Lloyds Banking  Farmers Bancorp

Excellent diversification

The 3 months correlation between Lloyds and Farmers is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and Farmers Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Bancorp 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 Farmers Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Bancorp has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and Farmers Bancorp go up and down completely randomly.

Pair Corralation between Lloyds Banking and Farmers Bancorp

Assuming the 90 days horizon Lloyds Banking Group is expected to under-perform the Farmers Bancorp. In addition to that, Lloyds Banking is 2.75 times more volatile than Farmers Bancorp. It trades about -0.04 of its total potential returns per unit of risk. Farmers Bancorp is currently generating about 0.18 per unit of volatility. If you would invest  3,313  in Farmers Bancorp on September 23, 2024 and sell it today you would earn a total of  535.00  from holding Farmers Bancorp or generate 16.15% return on investment over 90 days.

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

Lloyds Banking Group  vs.  Farmers Bancorp

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 unsteady 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.

Farmers Bancorp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers Bancorp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Farmers Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lloyds Banking and Farmers Bancorp

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

The idea behind Lloyds Banking Group and Farmers Bancorp 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.