Correlation Between Citigroup and Hennessy Small

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

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

Diversification Opportunities for Citigroup and Hennessy Small

0.93

Correlation Coefficient

Citigroup  Hennessy Small

Almost no diversification

The 3 months correlation between Citigroup and Hennessy is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Hennessy Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Small Cap 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 Hennessy Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Small Cap has no effect on the direction of Citigroup i.e., Citigroup and Hennessy Small go up and down completely randomly.

Pair Corralation between Citigroup and Hennessy Small

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.91 times more return on investment than Hennessy Small. However, Citigroup is 1.1 times less risky than Hennessy Small. It trades about 0.13 of its potential returns per unit of risk. Hennessy Small Cap is currently generating about 0.11 per unit of risk. If you would invest  6,092  in Citigroup on September 2, 2024 and sell it today you would earn a total of  995.00  from holding Citigroup or generate 16.33% return on investment over 90 days.

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

Citigroup  vs.  Hennessy Small Cap

Citigroup

Risk-Adjusted Performance

10 of 100

OK

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 unfluctuating fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Hennessy Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Hennessy Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Hennessy Small

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

The idea behind Citigroup and Hennessy Small Cap 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.