Correlation Between Citigroup and Hua Hong

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

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

Diversification Opportunities for Citigroup and Hua Hong

0.1

Correlation Coefficient

Citigroup  Hua Hong

Average diversification

The 3 months correlation between Citigroup and Hua is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Hua Hong Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Hong Semiconductor 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 Hua Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Hong Semiconductor has no effect on the direction of Citigroup i.e., Citigroup and Hua Hong go up and down completely randomly.

Pair Corralation between Citigroup and Hua Hong

Taking into account the 90-day investment horizon Citigroup is expected to generate 14.84 times less return on investment than Hua Hong. But when comparing it to its historical volatility, Citigroup is 2.49 times less risky than Hua Hong. It trades about 0.04 of its potential returns per unit of risk. Hua Hong Semiconductor is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  254.00  in Hua Hong Semiconductor on December 19, 2024 and sell it today you would earn a total of  202.00  from holding Hua Hong Semiconductor or generate 79.53% return on investment over 90 days.

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

Citigroup  vs.  Hua Hong Semiconductor

Citigroup

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 2 (%) 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.

Hua Hong Semiconductor

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Hong Semiconductor are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Hua Hong reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Hua Hong

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

The idea behind Citigroup and Hua Hong Semiconductor 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.