Correlation Between Citigroup and Algonquin Power

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

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

Diversification Opportunities for Citigroup and Algonquin Power

-0.11

Correlation Coefficient

Citigroup  Algonquin Power

Good diversification

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

Pair Corralation between Citigroup and Algonquin Power

Taking into account the 90-day investment horizon Citigroup is expected to generate 9.31 times less return on investment than Algonquin Power. In addition to that, Citigroup is 1.21 times more volatile than Algonquin Power Utilities. It trades about 0.01 of its total potential returns per unit of risk. Algonquin Power Utilities is currently generating about 0.17 per unit of volatility. If you would invest  442.00  in Algonquin Power Utilities on December 29, 2024 and sell it today you would earn a total of  77.00  from holding Algonquin Power Utilities or generate 17.42% return on investment over 90 days.

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

Citigroup  vs.  Algonquin Power Utilities

Citigroup

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 1 (%) 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Algonquin Power Utilities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Algonquin Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Algonquin Power

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

The idea behind Citigroup and Algonquin Power Utilities 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.