Correlation Between Citigroup and Universal

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

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

Diversification Opportunities for Citigroup and Universal

0.84

Correlation Coefficient

Citigroup  Universal

Very poor diversification

The 3 months correlation between Citigroup and Universal is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal 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 Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of Citigroup i.e., Citigroup and Universal go up and down completely randomly.

Pair Corralation between Citigroup and Universal

Taking into account the 90-day investment horizon Citigroup is expected to generate 10.07 times less return on investment than Universal. But when comparing it to its historical volatility, Citigroup is 2.17 times less risky than Universal. It trades about 0.02 of its potential returns per unit of risk. Universal is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,720  in Universal on December 5, 2024 and sell it today you would earn a total of  390.00  from holding Universal or generate 14.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	93.22%
Values	Daily Returns

Citigroup  vs.  Universal

Citigroup

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Citigroup is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Universal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Universal showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Universal

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

The idea behind Citigroup and Universal 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..