Correlation Between Citigroup and Gilead Sciences

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

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

Diversification Opportunities for Citigroup and Gilead Sciences

0.88

Correlation Coefficient

Citigroup  Gilead Sciences

Very poor diversification

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

Pair Corralation between Citigroup and Gilead Sciences

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.86 times less return on investment than Gilead Sciences. In addition to that, Citigroup is 1.08 times more volatile than Gilead Sciences. It trades about 0.06 of its total potential returns per unit of risk. Gilead Sciences is currently generating about 0.2 per unit of volatility. If you would invest  18,921  in Gilead Sciences on September 26, 2024 and sell it today you would earn a total of  9,835  from holding Gilead Sciences or generate 51.98% return on investment over 90 days.

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

Citigroup  vs.  Gilead Sciences

Citigroup

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) 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.

Gilead Sciences

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Gilead Sciences sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Gilead Sciences

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

The idea behind Citigroup and Gilead Sciences 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.