Correlation Between Citigroup and Home Depot

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

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

Diversification Opportunities for Citigroup and Home Depot

0.62

Correlation Coefficient

Citigroup  Home Depot

Poor diversification

The 3 months correlation between Citigroup and Home is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Citigroup i.e., Citigroup and Home Depot go up and down completely randomly.

Pair Corralation between Citigroup and Home Depot

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.4 times more return on investment than Home Depot. However, Citigroup is 1.4 times more volatile than Home Depot. It trades about 0.21 of its potential returns per unit of risk. Home Depot is currently generating about 0.27 per unit of risk. If you would invest  6,412  in Citigroup on August 30, 2024 and sell it today you would earn a total of  604.00  from holding Citigroup or generate 9.42% return on investment over 90 days.

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

Citigroup  vs.  Home Depot

Citigroup

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Home Depot

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Home Depot

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

The idea behind Citigroup and Home Depot 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.