Correlation Between Citigroup and Indus

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

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

Diversification Opportunities for Citigroup and Indus

0.47

Correlation Coefficient

Citigroup  Indus

Very weak diversification

The 3 months correlation between Citigroup and Indus is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Indus Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indus Motor 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 Indus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indus Motor has no effect on the direction of Citigroup i.e., Citigroup and Indus go up and down completely randomly.

Pair Corralation between Citigroup and Indus

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.0 times more return on investment than Indus. However, Citigroup is 1.0 times more volatile than Indus Motor. It trades about 0.23 of its potential returns per unit of risk. Indus Motor is currently generating about 0.12 per unit of risk. If you would invest  6,255  in Citigroup on October 23, 2024 and sell it today you would earn a total of  1,744  from holding Citigroup or generate 27.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

Citigroup  vs.  Indus Motor

Citigroup

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 18 (%) 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.

Indus Motor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Indus Motor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Indus sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Indus

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

The idea behind Citigroup and Indus Motor 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.