Correlation Between Citigroup and Illinois Tool

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

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

Diversification Opportunities for Citigroup and Illinois Tool

0.94

Correlation Coefficient

Citigroup  Illinois Tool

Almost no diversification

The 3 months correlation between Citigroup and Illinois is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Illinois Tool Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Illinois Tool Works 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 Illinois Tool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Illinois Tool Works has no effect on the direction of Citigroup i.e., Citigroup and Illinois Tool go up and down completely randomly.

Pair Corralation between Citigroup and Illinois Tool

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.54 times more return on investment than Illinois Tool. However, Citigroup is 1.54 times more volatile than Illinois Tool Works. It trades about 0.11 of its potential returns per unit of risk. Illinois Tool Works is currently generating about 0.06 per unit of risk. If you would invest  4,325  in Citigroup on September 23, 2024 and sell it today you would earn a total of  2,594  from holding Citigroup or generate 59.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.54%
Values	Daily Returns

Citigroup  vs.  Illinois Tool Works

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 unsteady fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Illinois Tool Works

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Citigroup and Illinois Tool

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

The idea behind Citigroup and Illinois Tool Works 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.