Correlation Between Citigroup and ChengDu Hi-Tech

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

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

Diversification Opportunities for Citigroup and ChengDu Hi-Tech

0.64

Correlation Coefficient

Citigroup  ChengDu Hi-Tech

Poor diversification

The 3 months correlation between Citigroup and ChengDu is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech 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 ChengDu Hi-Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of Citigroup i.e., Citigroup and ChengDu Hi-Tech go up and down completely randomly.

Pair Corralation between Citigroup and ChengDu Hi-Tech

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.56 times more return on investment than ChengDu Hi-Tech. However, Citigroup is 1.79 times less risky than ChengDu Hi-Tech. It trades about 0.21 of its potential returns per unit of risk. ChengDu Hi Tech Development is currently generating about -0.25 per unit of risk. If you would invest  6,393  in Citigroup on August 31, 2024 and sell it today you would earn a total of  623.00  from holding Citigroup or generate 9.75% return on investment over 90 days.

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

Citigroup  vs.  ChengDu Hi Tech Development

Citigroup

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

ChengDu Hi Tech

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ChengDu Hi Tech Development are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ChengDu Hi-Tech sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and ChengDu Hi-Tech

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

The idea behind Citigroup and ChengDu Hi Tech Development 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.

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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.