Correlation Between Citigroup and Computershare

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

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

Diversification Opportunities for Citigroup and Computershare

0.94

Correlation Coefficient

Citigroup  Computershare

Almost no diversification

The 3 months correlation between Citigroup and Computershare is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Computershare Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computershare ADR 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 Computershare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computershare ADR has no effect on the direction of Citigroup i.e., Citigroup and Computershare go up and down completely randomly.

Pair Corralation between Citigroup and Computershare

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.92 times more return on investment than Computershare. However, Citigroup is 1.08 times less risky than Computershare. It trades about 0.04 of its potential returns per unit of risk. Computershare Ltd ADR is currently generating about 0.04 per unit of risk. If you would invest  7,250  in Citigroup on October 11, 2024 and sell it today you would earn a total of  76.00  from holding Citigroup or generate 1.05% return on investment over 90 days.

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

Citigroup  vs.  Computershare Ltd ADR

Citigroup

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Computershare ADR

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Computershare Ltd ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Computershare showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Computershare

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

The idea behind Citigroup and Computershare Ltd ADR 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.