Correlation Between Citigroup and First Merchants

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

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

Diversification Opportunities for Citigroup and First Merchants

0.17

Correlation Coefficient

Citigroup  First Merchants

Average diversification

The 3 months correlation between Citigroup and First is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants 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 First Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Merchants has no effect on the direction of Citigroup i.e., Citigroup and First Merchants go up and down completely randomly.

Pair Corralation between Citigroup and First Merchants

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.27 times more return on investment than First Merchants. However, Citigroup is 2.27 times more volatile than First Merchants. It trades about 0.04 of its potential returns per unit of risk. First Merchants is currently generating about 0.02 per unit of risk. If you would invest  7,051  in Citigroup on December 27, 2024 and sell it today you would earn a total of  273.00  from holding Citigroup or generate 3.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Citigroup  vs.  First Merchants

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Merchants

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Merchants is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Citigroup and First Merchants

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

The idea behind Citigroup and First Merchants 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 CEOs Directory module to screen CEOs from public companies around the world.