Correlation Between Lloyds Banking and KeyCorp

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

Diversification Opportunities for Lloyds Banking and KeyCorp

0.8

Correlation Coefficient

Lloyds Banking  KeyCorp

Very poor diversification

The 3 months correlation between Lloyds and KeyCorp is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Lloyds Banking Group and KeyCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KeyCorp 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 KeyCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KeyCorp has no effect on the direction of Lloyds Banking i.e., Lloyds Banking and KeyCorp go up and down completely randomly.

Pair Corralation between Lloyds Banking and KeyCorp

Assuming the 90 days horizon Lloyds Banking is expected to generate 1.2 times less return on investment than KeyCorp. In addition to that, Lloyds Banking is 1.73 times more volatile than KeyCorp. It trades about 0.05 of its total potential returns per unit of risk. KeyCorp is currently generating about 0.11 per unit of volatility. If you would invest  1,104  in KeyCorp on February 1, 2024 and sell it today you would earn a total of  345.00  from holding KeyCorp or generate 31.25% return on investment over 90 days.

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

Lloyds Banking Group  vs.  KeyCorp

Lloyds Banking Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lloyds Banking Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Lloyds Banking reported solid returns over the last few months and may actually be approaching a breakup point.

KeyCorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KeyCorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, KeyCorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lloyds Banking and KeyCorp

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

The idea behind Lloyds Banking Group and KeyCorp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .