Correlation Between Citigroup and Adidas AG

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

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

Diversification Opportunities for Citigroup and Adidas AG

0.11

Correlation Coefficient

Citigroup  Adidas AG

Average diversification

The 3 months correlation between Citigroup and Adidas is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and adidas AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on adidas AG 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 Adidas AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of adidas AG has no effect on the direction of Citigroup i.e., Citigroup and Adidas AG go up and down completely randomly.

Pair Corralation between Citigroup and Adidas AG

Taking into account the 90-day investment horizon Citigroup is expected to generate 12.03 times less return on investment than Adidas AG. But when comparing it to its historical volatility, Citigroup is 1.12 times less risky than Adidas AG. It trades about 0.02 of its potential returns per unit of risk. adidas AG is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  22,150  in adidas AG on September 25, 2024 and sell it today you would earn a total of  1,460  from holding adidas AG or generate 6.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Citigroup  vs.  adidas AG

Citigroup

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 12 (%) 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.

adidas AG

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in adidas AG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Adidas AG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Citigroup and Adidas AG

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

The idea behind Citigroup and adidas AG 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.