Correlation Between Citigroup and Nova Eye

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

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

Diversification Opportunities for Citigroup and Nova Eye

-0.67

Correlation Coefficient

Citigroup  Nova Eye

Excellent diversification

The 3 months correlation between Citigroup and Nova is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Nova Eye Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Eye Medical 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 Nova Eye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Eye Medical has no effect on the direction of Citigroup i.e., Citigroup and Nova Eye go up and down completely randomly.

Pair Corralation between Citigroup and Nova Eye

Taking into account the 90-day investment horizon Citigroup is expected to generate 10.26 times less return on investment than Nova Eye. But when comparing it to its historical volatility, Citigroup is 4.43 times less risky than Nova Eye. It trades about 0.07 of its potential returns per unit of risk. Nova Eye Medical is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  16.00  in Nova Eye Medical on October 10, 2024 and sell it today you would earn a total of  3.00  from holding Nova Eye Medical or generate 18.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Citigroup  vs.  Nova Eye Medical

Citigroup

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nova Eye Medical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Eye Medical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Nova Eye unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Nova Eye

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

The idea behind Citigroup and Nova Eye Medical 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.