Correlation Between Citigroup and Ishares Tips

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

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

Diversification Opportunities for Citigroup and Ishares Tips

0.33

Correlation Coefficient

Citigroup  Ishares Tips

Weak diversification

The 3 months correlation between Citigroup and Ishares is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Ishares Tips Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ishares Tips 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 Ishares Tips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ishares Tips Bond has no effect on the direction of Citigroup i.e., Citigroup and Ishares Tips go up and down completely randomly.

Pair Corralation between Citigroup and Ishares Tips

Taking into account the 90-day investment horizon Citigroup is expected to under-perform the Ishares Tips. In addition to that, Citigroup is 7.47 times more volatile than Ishares Tips Bond. It trades about -0.04 of its total potential returns per unit of risk. Ishares Tips Bond is currently generating about 0.07 per unit of volatility. If you would invest  1,145  in Ishares Tips Bond on December 10, 2024 and sell it today you would earn a total of  12.00  from holding Ishares Tips Bond or generate 1.05% return on investment over 90 days.

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

Citigroup  vs.  Ishares Tips Bond

Citigroup

Risk-Adjusted Performance

Very Weak

Over the last 90 days Citigroup has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Citigroup is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Ishares Tips Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ishares Tips Bond are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ishares Tips 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 Ishares Tips

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

The idea behind Citigroup and Ishares Tips 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.

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.