Correlation Between Citigroup and British American

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

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

Diversification Opportunities for Citigroup and British American

0.29

Correlation Coefficient

Citigroup  British American

Modest diversification

The 3 months correlation between Citigroup and British is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Citigroup i.e., Citigroup and British American go up and down completely randomly.

Pair Corralation between Citigroup and British American

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.63 times more return on investment than British American. However, Citigroup is 1.58 times less risky than British American. It trades about 0.12 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.01 per unit of risk. If you would invest  7,038  in Citigroup on November 28, 2024 and sell it today you would earn a total of  776.00  from holding Citigroup or generate 11.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.67%
Values	Daily Returns

Citigroup  vs.  British American Tobacco

Citigroup

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in March 2025.

British American Tobacco

Risk-Adjusted Performance

Weak

Over the last 90 days British American Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, British American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and British American

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

The idea behind Citigroup and British American Tobacco 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.