Correlation Between Lloyds Banking and West Shore

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

Diversification Opportunities for Lloyds Banking and West Shore

-0.6

Correlation Coefficient

Lloyds Banking  West Shore

Excellent diversification

The 3 months correlation between Lloyds and West is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and West Shore Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Shore 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 West Shore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Shore Bank has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and West Shore go up and down completely randomly.

Pair Corralation between Lloyds Banking and West Shore

Assuming the 90 days horizon Lloyds Banking Group is expected to generate 1.93 times more return on investment than West Shore. However, Lloyds Banking is 1.93 times more volatile than West Shore Bank. It trades about 0.03 of its potential returns per unit of risk. West Shore Bank is currently generating about 0.0 per unit of risk. If you would invest  55.00  in Lloyds Banking Group on September 24, 2024 and sell it today you would earn a total of  12.00  from holding Lloyds Banking Group or generate 21.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	85.71%
Values	Daily Returns

Lloyds Banking Group  vs.  West Shore 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.

West Shore Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in West Shore Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, West Shore is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Lloyds Banking and West Shore

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

The idea behind Lloyds Banking Group and West Shore 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.

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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.