Correlation Between Lloyds Banking and Bank Negara

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

Diversification Opportunities for Lloyds Banking and Bank Negara

0.73

Correlation Coefficient

Lloyds Banking  Bank Negara

Poor diversification

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

Pair Corralation between Lloyds Banking and Bank Negara

Assuming the 90 days horizon Lloyds Banking Group is expected to generate 0.73 times more return on investment than Bank Negara. However, Lloyds Banking Group is 1.38 times less risky than Bank Negara. It trades about -0.01 of its potential returns per unit of risk. Bank Negara Indonesia is currently generating about -0.03 per unit of risk. If you would invest  70.00  in Lloyds Banking Group on September 12, 2024 and sell it today you would lose (4.00) from holding Lloyds Banking Group or give up 5.71% of portfolio value over 90 days.

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

Lloyds Banking Group  vs.  Bank Negara Indonesia

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 nearly stable basic indicators, Lloyds Banking is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Bank Negara Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Negara Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Lloyds Banking and Bank Negara

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

The idea behind Lloyds Banking Group and Bank Negara Indonesia 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 Stocks Directory module to find actively traded stocks across global markets.