Correlation Between Citigroup and Valero Energy
Can any of the company-specific risk be diversified away by investing in both Citigroup and Valero Energy 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 Valero Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Citigroup and Valero Energy, you can compare the effects of market volatilities on Citigroup and Valero Energy 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 Valero Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and Valero Energy.
Diversification Opportunities for Citigroup and Valero Energy
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Citigroup and Valero is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy 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 Valero Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valero Energy has no effect on the direction of Citigroup i.e., Citigroup and Valero Energy go up and down completely randomly.
Pair Corralation between Citigroup and Valero Energy
Given the investment horizon of 90 days Citigroup is expected to generate 0.82 times more return on investment than Valero Energy. However, Citigroup is 1.22 times less risky than Valero Energy. It trades about 0.07 of its potential returns per unit of risk. Valero Energy is currently generating about 0.02 per unit of risk. If you would invest 81,457 in Citigroup on September 24, 2024 and sell it today you would earn a total of 56,544 from holding Citigroup or generate 69.42% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 99.8% |
Values | Daily Returns |
Citigroup vs. Valero Energy
Performance |
Timeline |
Citigroup |
Valero Energy |
Citigroup and Valero Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Citigroup and Valero Energy
The main advantage of trading using opposite Citigroup and Valero Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, Valero Energy 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 Valero Energy will offset losses from the drop in Valero Energy's long position.Citigroup vs. JPMorgan Chase Co | Citigroup vs. Banco Bilbao Vizcaya | Citigroup vs. Monster Beverage Corp | Citigroup vs. Walmart |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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