Correlation Between Citigroup and Formula

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

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

Diversification Opportunities for Citigroup and Formula

-0.38

Correlation Coefficient

Citigroup  Formula

Very good diversification

The 3 months correlation between Citigroup and Formula is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Formula in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formula 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 Formula. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formula has no effect on the direction of Citigroup i.e., Citigroup and Formula go up and down completely randomly.

Pair Corralation between Citigroup and Formula

Taking into account the 90-day investment horizon Citigroup is expected to generate 5.11 times less return on investment than Formula. In addition to that, Citigroup is 1.02 times more volatile than Formula. It trades about 0.01 of its total potential returns per unit of risk. Formula is currently generating about 0.08 per unit of volatility. If you would invest  3,035,000  in Formula on December 30, 2024 and sell it today you would earn a total of  215,000  from holding Formula or generate 7.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	83.87%
Values	Daily Returns

Citigroup  vs.  Formula

Citigroup

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 1 (%) 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.

Formula

Risk-Adjusted Performance

Modest

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

Pair Trading with Citigroup and Formula

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

The idea behind Citigroup and Formula 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.