Correlation Between Citigroup and US Bancorp

Can any of the company-specific risk be diversified away by investing in both Citigroup and US Bancorp 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 Citigroup and US Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Citigroup and US Bancorp, you can compare the effects of market volatilities on Citigroup and US Bancorp 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 Citigroup with a short position of US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and US Bancorp.

Diversification Opportunities for Citigroup and US Bancorp

-0.41

Correlation Coefficient

Citigroup  US Bancorp

Very good diversification

The 3 months correlation between Citigroup and USB is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp and Citigroup 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 Citigroup are associated (or correlated) with US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Citigroup i.e., Citigroup and US Bancorp go up and down completely randomly.

Pair Corralation between Citigroup and US Bancorp

Given the investment horizon of 90 days Citigroup is expected to generate 2.54 times more return on investment than US Bancorp. However, Citigroup is 2.54 times more volatile than US Bancorp. It trades about 0.04 of its potential returns per unit of risk. US Bancorp is currently generating about -0.09 per unit of risk. If you would invest  148,337  in Citigroup on December 5, 2024 and sell it today you would earn a total of  3,563  from holding Citigroup or generate 2.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

Citigroup  vs.  US Bancorp

Citigroup

Risk-Adjusted Performance

Insignificant

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

US Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, US Bancorp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and US Bancorp

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

The idea behind Citigroup and US Bancorp 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.