Correlation Between Citigroup and Guangdong Electric

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

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

Diversification Opportunities for Citigroup and Guangdong Electric

0.06

Correlation Coefficient

Citigroup  Guangdong Electric

Significant diversification

The 3 months correlation between Citigroup and Guangdong is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Guangdong Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Electric Power 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 Guangdong Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Electric Power has no effect on the direction of Citigroup i.e., Citigroup and Guangdong Electric go up and down completely randomly.

Pair Corralation between Citigroup and Guangdong Electric

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.71 times more return on investment than Guangdong Electric. However, Citigroup is 1.71 times more volatile than Guangdong Electric Power. It trades about 0.12 of its potential returns per unit of risk. Guangdong Electric Power is currently generating about 0.08 per unit of risk. If you would invest  6,083  in Citigroup on September 24, 2024 and sell it today you would earn a total of  836.00  from holding Citigroup or generate 13.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.31%
Values	Daily Returns

Citigroup  vs.  Guangdong Electric Power

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 uncertain fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Electric Power

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Electric Power are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangdong Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and Guangdong Electric

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

The idea behind Citigroup and Guangdong Electric Power 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.