Correlation Between Citigroup and Financials Ultrasector

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

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

Diversification Opportunities for Citigroup and Financials Ultrasector

0.88

Correlation Coefficient

Citigroup  Financials Ultrasector

Very poor diversification

The 3 months correlation between Citigroup and Financials is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Financials Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector 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 Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of Citigroup i.e., Citigroup and Financials Ultrasector go up and down completely randomly.

Pair Corralation between Citigroup and Financials Ultrasector

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.21 times more return on investment than Financials Ultrasector. However, Citigroup is 1.21 times more volatile than Financials Ultrasector Profund. It trades about 0.09 of its potential returns per unit of risk. Financials Ultrasector Profund is currently generating about 0.1 per unit of risk. If you would invest  4,297  in Citigroup on September 30, 2024 and sell it today you would earn a total of  2,803  from holding Citigroup or generate 65.23% return on investment over 90 days.

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

Citigroup  vs.  Financials Ultrasector Profund

Citigroup

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Financials Ultrasector

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Financials Ultrasector may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Citigroup and Financials Ultrasector

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

The idea behind Citigroup and Financials Ultrasector Profund 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.