Correlation Between Citigroup and Merrill Lynch

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

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

Diversification Opportunities for Citigroup and Merrill Lynch

-0.74

Correlation Coefficient

Citigroup  Merrill Lynch

Pay attention - limited upside

The 3 months correlation between Citigroup and Merrill is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Merrill Lynch Depositor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merrill Lynch Depositor 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 Merrill Lynch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merrill Lynch Depositor has no effect on the direction of Citigroup i.e., Citigroup and Merrill Lynch go up and down completely randomly.

Pair Corralation between Citigroup and Merrill Lynch

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.78 times more return on investment than Merrill Lynch. However, Citigroup is 1.78 times more volatile than Merrill Lynch Depositor. It trades about 0.22 of its potential returns per unit of risk. Merrill Lynch Depositor is currently generating about 0.02 per unit of risk. If you would invest  6,129  in Citigroup on September 19, 2024 and sell it today you would earn a total of  988.50  from holding Citigroup or generate 16.13% return on investment over 90 days.

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

Citigroup  vs.  Merrill Lynch Depositor

Citigroup

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 9 (%) 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.

Merrill Lynch Depositor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merrill Lynch Depositor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Merrill Lynch 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 Merrill Lynch

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

The idea behind Citigroup and Merrill Lynch Depositor 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.