Correlation Between Citigroup and Advanced Energy

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

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

Diversification Opportunities for Citigroup and Advanced Energy

0.93

Correlation Coefficient

Citigroup  Advanced Energy

Almost no diversification

The 3 months correlation between Citigroup and Advanced is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Advanced Energy Solution in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Energy Solution 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 Advanced Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Energy Solution has no effect on the direction of Citigroup i.e., Citigroup and Advanced Energy go up and down completely randomly.

Pair Corralation between Citigroup and Advanced Energy

Taking into account the 90-day investment horizon Citigroup is expected to generate 3.31 times less return on investment than Advanced Energy. But when comparing it to its historical volatility, Citigroup is 1.84 times less risky than Advanced Energy. It trades about 0.18 of its potential returns per unit of risk. Advanced Energy Solution is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  48,700  in Advanced Energy Solution on September 15, 2024 and sell it today you would earn a total of  45,900  from holding Advanced Energy Solution or generate 94.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Citigroup  vs.  Advanced Energy Solution

Citigroup

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 13 (%) 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.

Advanced Energy Solution

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Solution are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advanced Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Advanced Energy

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

The idea behind Citigroup and Advanced Energy Solution 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 Global Correlations module to find global opportunities by holding instruments from different markets.