Correlation Between Citigroup and Brother Industries

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

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

Diversification Opportunities for Citigroup and Brother Industries

0.08

Correlation Coefficient

Citigroup  Brother Industries

Significant diversification

The 3 months correlation between Citigroup and Brother is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Brother Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brother Industries 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 Brother Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brother Industries has no effect on the direction of Citigroup i.e., Citigroup and Brother Industries go up and down completely randomly.

Pair Corralation between Citigroup and Brother Industries

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.55 times more return on investment than Brother Industries. However, Citigroup is 1.83 times less risky than Brother Industries. It trades about 0.02 of its potential returns per unit of risk. Brother Industries is currently generating about -0.05 per unit of risk. If you would invest  7,173  in Citigroup on December 5, 2024 and sell it today you would earn a total of  62.00  from holding Citigroup or generate 0.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.16%
Values	Daily Returns

Citigroup  vs.  Brother Industries

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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Brother Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brother Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Citigroup and Brother Industries

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

The idea behind Citigroup and Brother Industries 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.