Correlation Between Citigroup and Utilities Portfolio

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

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

Diversification Opportunities for Citigroup and Utilities Portfolio

0.66

Correlation Coefficient

Citigroup  Utilities Portfolio

Poor diversification

The 3 months correlation between Citigroup and Utilities is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Utilities Portfolio Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Portfolio 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 Utilities Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Portfolio has no effect on the direction of Citigroup i.e., Citigroup and Utilities Portfolio go up and down completely randomly.

Pair Corralation between Citigroup and Utilities Portfolio

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.8 times more return on investment than Utilities Portfolio. However, Citigroup is 1.25 times less risky than Utilities Portfolio. It trades about 0.27 of its potential returns per unit of risk. Utilities Portfolio Utilities is currently generating about -0.01 per unit of risk. If you would invest  6,889  in Citigroup on September 14, 2024 and sell it today you would earn a total of  307.00  from holding Citigroup or generate 4.46% return on investment over 90 days.

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

Citigroup  vs.  Utilities Portfolio Utilities

Citigroup

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 14 (%) 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.

Utilities Portfolio

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Portfolio Utilities are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Utilities Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and Utilities Portfolio

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

The idea behind Citigroup and Utilities Portfolio Utilities 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.