Correlation Between Citigroup and Direct Communication

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

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

Diversification Opportunities for Citigroup and Direct Communication

0.36

Correlation Coefficient

Citigroup  Direct Communication

Weak diversification

The 3 months correlation between Citigroup and Direct is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Direct Communication Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Communication 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 Direct Communication. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Communication has no effect on the direction of Citigroup i.e., Citigroup and Direct Communication go up and down completely randomly.

Pair Corralation between Citigroup and Direct Communication

Taking into account the 90-day investment horizon Citigroup is expected to generate 10.95 times less return on investment than Direct Communication. But when comparing it to its historical volatility, Citigroup is 4.04 times less risky than Direct Communication. It trades about 0.07 of its potential returns per unit of risk. Direct Communication Solutions is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  125.00  in Direct Communication Solutions on September 23, 2024 and sell it today you would earn a total of  385.00  from holding Direct Communication Solutions or generate 308.0% 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.  Direct Communication Solutions

Citigroup

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Direct Communication

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Communication Solutions are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Direct Communication showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Direct Communication

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

The idea behind Citigroup and Direct Communication Solutions 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.

Check out your portfolio center.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.