Correlation Between Citigroup and Verizon Communications

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

By analyzing existing cross correlation between Citigroup and Verizon Communications, you can compare the effects of market volatilities on Citigroup and Verizon Communications 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and Verizon Communications.

Diversification Opportunities for Citigroup and Verizon Communications

-0.19

Correlation Coefficient

Citigroup  Verizon Communications

Good diversification

The 3 months correlation between Citigroup and Verizon is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Citigroup i.e., Citigroup and Verizon Communications go up and down completely randomly.

Pair Corralation between Citigroup and Verizon Communications

Given the investment horizon of 90 days Citigroup is expected to generate 32.54 times less return on investment than Verizon Communications. But when comparing it to its historical volatility, Citigroup is 1.27 times less risky than Verizon Communications. It trades about 0.0 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  79,383  in Verizon Communications on December 29, 2024 and sell it today you would earn a total of  12,917  from holding Verizon Communications or generate 16.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Citigroup  vs.  Verizon Communications

Citigroup

Risk-Adjusted Performance

Very Weak

Over the last 90 days Citigroup has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Verizon Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Verizon Communications showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Verizon Communications

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

The idea behind Citigroup and Verizon Communications 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 Transaction History module to view history of all your transactions and understand their impact on performance.