Correlation Between Citigroup and Beijing Compass

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

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

Diversification Opportunities for Citigroup and Beijing Compass

0.63

Correlation Coefficient

Citigroup  Beijing Compass

Poor diversification

The 3 months correlation between Citigroup and Beijing is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Beijing Compass Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Compass Tech 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 Beijing Compass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Compass Tech has no effect on the direction of Citigroup i.e., Citigroup and Beijing Compass go up and down completely randomly.

Pair Corralation between Citigroup and Beijing Compass

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.02 times less return on investment than Beijing Compass. But when comparing it to its historical volatility, Citigroup is 2.92 times less risky than Beijing Compass. It trades about 0.1 of its potential returns per unit of risk. Beijing Compass Technology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,639  in Beijing Compass Technology on September 20, 2024 and sell it today you would earn a total of  3,731  from holding Beijing Compass Technology or generate 66.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.97%
Values	Daily Returns

Citigroup  vs.  Beijing Compass Technology

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.

Beijing Compass Tech

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Compass Technology are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Compass sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Beijing Compass

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

The idea behind Citigroup and Beijing Compass Technology 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.