Correlation Between Citigroup and Federated Ultrashort

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

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

Diversification Opportunities for Citigroup and Federated Ultrashort

0.83

Correlation Coefficient

Citigroup  Federated Ultrashort

Very poor diversification

The 3 months correlation between Citigroup and Federated is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Federated Ultrashort Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Ultrashort Bond 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 Federated Ultrashort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Ultrashort Bond has no effect on the direction of Citigroup i.e., Citigroup and Federated Ultrashort go up and down completely randomly.

Pair Corralation between Citigroup and Federated Ultrashort

Taking into account the 90-day investment horizon Citigroup is expected to generate 10.36 times more return on investment than Federated Ultrashort. However, Citigroup is 10.36 times more volatile than Federated Ultrashort Bond. It trades about 0.01 of its potential returns per unit of risk. Federated Ultrashort Bond is currently generating about 0.14 per unit of risk. If you would invest  7,087  in Citigroup on September 30, 2024 and sell it today you would earn a total of  13.00  from holding Citigroup or generate 0.18% return on investment over 90 days.

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

Citigroup  vs.  Federated Ultrashort Bond

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.

Federated Ultrashort Bond

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Ultrashort Bond are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Federated Ultrashort 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 Federated Ultrashort

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

The idea behind Citigroup and Federated Ultrashort Bond 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.