Correlation Between Citigroup and China Building

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

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

Diversification Opportunities for Citigroup and China Building

-0.08

Correlation Coefficient

Citigroup  China Building

Good diversification

The 3 months correlation between Citigroup and China is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and China Building Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Building Material 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 China Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Building Material has no effect on the direction of Citigroup i.e., Citigroup and China Building go up and down completely randomly.

Pair Corralation between Citigroup and China Building

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.23 times more return on investment than China Building. However, Citigroup is 1.23 times more volatile than China Building Material. It trades about 0.04 of its potential returns per unit of risk. China Building Material is currently generating about -0.07 per unit of risk. If you would invest  6,929  in Citigroup on December 23, 2024 and sell it today you would earn a total of  269.00  from holding Citigroup or generate 3.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Citigroup  vs.  China Building Material

Citigroup

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 3 (%) 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.

China Building Material

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Building Material has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Citigroup and China Building

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

The idea behind Citigroup and China Building Material 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.

Check out your portfolio center.

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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..