Correlation Between Citigroup and ESCO Technologies

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

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

Diversification Opportunities for Citigroup and ESCO Technologies

0.08

Correlation Coefficient

Citigroup  ESCO Technologies

Significant diversification

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

Pair Corralation between Citigroup and ESCO Technologies

Taking into account the 90-day investment horizon Citigroup is expected to generate 5.24 times less return on investment than ESCO Technologies. But when comparing it to its historical volatility, Citigroup is 1.52 times less risky than ESCO Technologies. It trades about 0.03 of its potential returns per unit of risk. ESCO Technologies is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  13,321  in ESCO Technologies on December 28, 2024 and sell it today you would earn a total of  2,637  from holding ESCO Technologies or generate 19.8% return on investment over 90 days.

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

Citigroup  vs.  ESCO Technologies

Citigroup

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 2 (%) 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

ESCO Technologies

Risk-Adjusted Performance

OK

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

Pair Trading with Citigroup and ESCO Technologies

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

The idea behind Citigroup and ESCO Technologies 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.