Correlation Between Citigroup and Aqua Power

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

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

Diversification Opportunities for Citigroup and Aqua Power

0.75

Correlation Coefficient

Citigroup  Aqua Power

Poor diversification

The 3 months correlation between Citigroup and Aqua is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Aqua Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqua Power Systems 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 Aqua Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqua Power Systems has no effect on the direction of Citigroup i.e., Citigroup and Aqua Power go up and down completely randomly.

Pair Corralation between Citigroup and Aqua Power

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.1 times more return on investment than Aqua Power. However, Citigroup is 9.59 times less risky than Aqua Power. It trades about 0.22 of its potential returns per unit of risk. Aqua Power Systems is currently generating about 0.02 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  249.00  from holding Citigroup or generate 3.61% return on investment over 90 days.

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

Citigroup  vs.  Aqua Power Systems

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.

Aqua Power Systems

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aqua Power Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Aqua Power demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Aqua Power

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

The idea behind Citigroup and Aqua Power Systems 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.