Correlation Between Citigroup and Henan Shenhuo

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

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

Diversification Opportunities for Citigroup and Henan Shenhuo

0.13

Correlation Coefficient

Citigroup  Henan Shenhuo

Average diversification

The 3 months correlation between Citigroup and Henan is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Henan Shenhuo Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Shenhuo Coal 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 Henan Shenhuo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Shenhuo Coal has no effect on the direction of Citigroup i.e., Citigroup and Henan Shenhuo go up and down completely randomly.

Pair Corralation between Citigroup and Henan Shenhuo

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.65 times more return on investment than Henan Shenhuo. However, Citigroup is 1.54 times less risky than Henan Shenhuo. It trades about 0.07 of its potential returns per unit of risk. Henan Shenhuo Coal is currently generating about 0.03 per unit of risk. If you would invest  4,168  in Citigroup on September 20, 2024 and sell it today you would earn a total of  2,734  from holding Citigroup or generate 65.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.17%
Values	Daily Returns

Citigroup  vs.  Henan Shenhuo Coal

Citigroup

Risk-Adjusted Performance

10 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) 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.

Henan Shenhuo Coal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Henan Shenhuo Coal are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Henan Shenhuo sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Henan Shenhuo

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

The idea behind Citigroup and Henan Shenhuo Coal 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..