Correlation Between Citigroup and Dongfeng

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

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

Diversification Opportunities for Citigroup and Dongfeng

0.82

Correlation Coefficient

Citigroup  Dongfeng

Very poor diversification

The 3 months correlation between Citigroup and Dongfeng is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Dongfeng Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongfeng Group 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 Dongfeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongfeng Group has no effect on the direction of Citigroup i.e., Citigroup and Dongfeng go up and down completely randomly.

Pair Corralation between Citigroup and Dongfeng

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.33 times more return on investment than Dongfeng. However, Citigroup is 3.0 times less risky than Dongfeng. It trades about 0.07 of its potential returns per unit of risk. Dongfeng Group is currently generating about 0.02 per unit of risk. If you would invest  4,162  in Citigroup on September 19, 2024 and sell it today you would earn a total of  2,650  from holding Citigroup or generate 63.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Citigroup  vs.  Dongfeng Group

Citigroup

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 6 (%) 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 January 2025.

Dongfeng Group

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal technical and fundamental indicators, Dongfeng reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Dongfeng

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

The idea behind Citigroup and Dongfeng Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.