Correlation Between Citigroup and First Trust

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

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

Diversification Opportunities for Citigroup and First Trust

0.96

Correlation Coefficient

Citigroup  First Trust

Almost no diversification

The 3 months correlation between Citigroup and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust RBA has no effect on the direction of Citigroup i.e., Citigroup and First Trust go up and down completely randomly.

Pair Corralation between Citigroup and First Trust

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.83 times more return on investment than First Trust. However, Citigroup is 1.2 times less risky than First Trust. It trades about 0.18 of its potential returns per unit of risk. First Trust RBA is currently generating about 0.01 per unit of risk. If you would invest  6,900  in Citigroup on September 17, 2024 and sell it today you would earn a total of  201.00  from holding Citigroup or generate 2.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Citigroup  vs.  First Trust RBA

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

First Trust RBA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust RBA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and First Trust

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

The idea behind Citigroup and First Trust RBA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.