Correlation Between Lloyds Banking and BP Plc
Can any of the company-specific risk be diversified away by investing in both Lloyds Banking and BP Plc 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 BP Plc 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 BP plc, you can compare the effects of market volatilities on Lloyds Banking and BP Plc 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 BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lloyds Banking and BP Plc.
Diversification Opportunities for Lloyds Banking and BP Plc
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lloyds and BPN is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc 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 BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and BP Plc go up and down completely randomly.
Pair Corralation between Lloyds Banking and BP Plc
Assuming the 90 days trading horizon Lloyds Banking Group is expected to generate 2.78 times more return on investment than BP Plc. However, Lloyds Banking is 2.78 times more volatile than BP plc. It trades about 0.22 of its potential returns per unit of risk. BP plc is currently generating about 0.26 per unit of risk. If you would invest 4,950 in Lloyds Banking Group on November 28, 2024 and sell it today you would earn a total of 1,274 from holding Lloyds Banking Group or generate 25.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lloyds Banking Group vs. BP plc
Performance |
| Timeline |
| Lloyds Banking Group |
| BP plc |
Lloyds Banking and BP Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lloyds Banking and BP Plc
The main advantage of trading using opposite Lloyds Banking and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lloyds Banking position performs unexpectedly, BP Plc 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 BP Plc will offset losses from the drop in BP Plc's long position.| Lloyds Banking vs. Micron Technology | Lloyds Banking vs. Prudential Financial | Lloyds Banking vs. Monster Beverage Corp | Lloyds Banking vs. Hoteles City Express |
| BP Plc vs. Salesforce, | BP Plc vs. Air Transport Services | BP Plc vs. Grupo Carso SAB | BP Plc vs. Genworth Financial |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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