Correlation Between Citigroup and Franklin Natural

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

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

Diversification Opportunities for Citigroup and Franklin Natural

0.71

Correlation Coefficient

Citigroup  Franklin Natural

Poor diversification

The 3 months correlation between Citigroup and Franklin is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Franklin Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Natural Res 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 Franklin Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Natural Res has no effect on the direction of Citigroup i.e., Citigroup and Franklin Natural go up and down completely randomly.

Pair Corralation between Citigroup and Franklin Natural

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.42 times less return on investment than Franklin Natural. In addition to that, Citigroup is 1.86 times more volatile than Franklin Natural Resources. It trades about 0.04 of its total potential returns per unit of risk. Franklin Natural Resources is currently generating about 0.11 per unit of volatility. If you would invest  2,749  in Franklin Natural Resources on December 22, 2024 and sell it today you would earn a total of  191.00  from holding Franklin Natural Resources or generate 6.95% return on investment over 90 days.

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

Citigroup  vs.  Franklin Natural Resources

Citigroup

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 3 (%) 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Franklin Natural Res

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Natural Resources are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Franklin Natural may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Citigroup and Franklin Natural

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

The idea behind Citigroup and Franklin Natural Resources 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.