Correlation Between Citigroup and Diageo Plc

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

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

Diversification Opportunities for Citigroup and Diageo Plc

-0.55

Correlation Coefficient

Citigroup  Diageo Plc

Excellent diversification

The 3 months correlation between Citigroup and Diageo is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc 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 Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of Citigroup i.e., Citigroup and Diageo Plc go up and down completely randomly.

Pair Corralation between Citigroup and Diageo Plc

Taking into account the 90-day investment horizon Citigroup is expected to generate 13.08 times less return on investment than Diageo Plc. But when comparing it to its historical volatility, Citigroup is 1.16 times less risky than Diageo Plc. It trades about 0.02 of its potential returns per unit of risk. Diageo plc is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,821  in Diageo plc on September 22, 2024 and sell it today you would earn a total of  204.00  from holding Diageo plc or generate 7.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.3%
Values	Daily Returns

Citigroup  vs.  Diageo plc

Citigroup

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Diageo plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Diageo Plc is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Citigroup and Diageo Plc

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

The idea behind Citigroup and Diageo plc 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.