Correlation Between Citigroup and Howmet Aerospace

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

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

Diversification Opportunities for Citigroup and Howmet Aerospace

0.35

Correlation Coefficient

Citigroup  Howmet Aerospace

Weak diversification

The 3 months correlation between Citigroup and Howmet is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Howmet Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Howmet Aerospace 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 Howmet Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Howmet Aerospace has no effect on the direction of Citigroup i.e., Citigroup and Howmet Aerospace go up and down completely randomly.

Pair Corralation between Citigroup and Howmet Aerospace

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.13 times more return on investment than Howmet Aerospace. However, Citigroup is 1.13 times more volatile than Howmet Aerospace. It trades about 0.41 of its potential returns per unit of risk. Howmet Aerospace is currently generating about 0.38 per unit of risk. If you would invest  6,977  in Citigroup on October 23, 2024 and sell it today you would earn a total of  1,022  from holding Citigroup or generate 14.65% return on investment over 90 days.

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

Citigroup  vs.  Howmet Aerospace

Citigroup

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 18 (%) 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.

Howmet Aerospace

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Howmet Aerospace are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Howmet Aerospace sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Howmet Aerospace

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

The idea behind Citigroup and Howmet Aerospace 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.