Correlation Between Citigroup and Industrial Bank

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

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

Diversification Opportunities for Citigroup and Industrial Bank

0.74

Correlation Coefficient

Citigroup  Industrial Bank

Poor diversification

The 3 months correlation between Citigroup and Industrial is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Industrial Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Bank 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 Industrial Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Bank has no effect on the direction of Citigroup i.e., Citigroup and Industrial Bank go up and down completely randomly.

Pair Corralation between Citigroup and Industrial Bank

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.83 times more return on investment than Industrial Bank. However, Citigroup is 1.83 times more volatile than Industrial Bank. It trades about 0.13 of its potential returns per unit of risk. Industrial Bank is currently generating about 0.1 per unit of risk. If you would invest  6,092  in Citigroup on September 2, 2024 and sell it today you would earn a total of  995.00  from holding Citigroup or generate 16.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.75%
Values	Daily Returns

Citigroup  vs.  Industrial Bank

Citigroup

Risk-Adjusted Performance

10 of 100

OK

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.

Industrial Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Citigroup and Industrial Bank

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

The idea behind Citigroup and Industrial Bank 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.