Correlation Between Centrica PLC and Lloyds Banking
Can any of the company-specific risk be diversified away by investing in both Centrica PLC and Lloyds Banking 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 Centrica PLC and Lloyds Banking into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Centrica PLC ADR and Lloyds Banking Group, you can compare the effects of market volatilities on Centrica PLC and Lloyds Banking 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 Centrica PLC with a short position of Lloyds Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of Centrica PLC and Lloyds Banking.
Diversification Opportunities for Centrica PLC and Lloyds Banking
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Centrica and Lloyds is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Centrica PLC ADR and Lloyds Banking Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lloyds Banking Group and Centrica PLC 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 Centrica PLC ADR are associated (or correlated) with Lloyds Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lloyds Banking Group has no effect on the direction of Centrica PLC i.e., Centrica PLC and Lloyds Banking go up and down completely randomly.
Pair Corralation between Centrica PLC and Lloyds Banking
Assuming the 90 days horizon Centrica PLC ADR is expected to generate 0.82 times more return on investment than Lloyds Banking. However, Centrica PLC ADR is 1.21 times less risky than Lloyds Banking. It trades about 0.24 of its potential returns per unit of risk. Lloyds Banking Group is currently generating about -0.02 per unit of risk. If you would invest 595.00 in Centrica PLC ADR on September 3, 2024 and sell it today you would earn a total of 55.00 from holding Centrica PLC ADR or generate 9.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Centrica PLC ADR vs. Lloyds Banking Group
Performance |
| Timeline |
| Centrica PLC ADR |
| Lloyds Banking Group |
Centrica PLC and Lloyds Banking Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Centrica PLC and Lloyds Banking
The main advantage of trading using opposite Centrica PLC and Lloyds Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Centrica PLC position performs unexpectedly, Lloyds Banking 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 Lloyds Banking will offset losses from the drop in Lloyds Banking's long position.| Centrica PLC vs. NRG Energy | Centrica PLC vs. TransAlta Corp | Centrica PLC vs. Kenon Holdings | Centrica PLC vs. Pampa Energia SA |
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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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