Correlation Between GM and Lloyds Banking
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Lloyds Banking into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Lloyds Banking Group, you can compare the effects of market volatilities on GM 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 GM with a short position of Lloyds Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Lloyds Banking.
Diversification Opportunities for GM and Lloyds Banking
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Lloyds is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding General Motors 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 GM 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 General Motors 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 GM i.e., GM and Lloyds Banking go up and down completely randomly.
Pair Corralation between GM and Lloyds Banking
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.67 times more return on investment than Lloyds Banking. However, General Motors is 1.49 times less risky than Lloyds Banking. It trades about 0.2 of its potential returns per unit of risk. Lloyds Banking Group is currently generating about -0.09 per unit of risk. If you would invest 4,484 in General Motors on August 30, 2024 and sell it today you would earn a total of 1,066 from holding General Motors or generate 23.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Lloyds Banking Group
Performance |
| Timeline |
| General Motors |
| Lloyds Banking Group |
GM and Lloyds Banking Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Lloyds Banking
The main advantage of trading using opposite GM and Lloyds Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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.The idea behind General Motors and Lloyds Banking Group 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.| Lloyds Banking vs. PT Bank Rakyat | Lloyds Banking vs. Barclays PLC | Lloyds Banking vs. Bank Mandiri Persero | Lloyds Banking vs. China Petroleum Chemical |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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