Correlation Between Citigroup and London City

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

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

Diversification Opportunities for Citigroup and London City

0.83

Correlation Coefficient

Citigroup  London City

Very poor diversification

The 3 months correlation between Citigroup and London is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and London City Equities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London City Equities 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 London City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London City Equities has no effect on the direction of Citigroup i.e., Citigroup and London City go up and down completely randomly.

Pair Corralation between Citigroup and London City

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.12 times more return on investment than London City. However, Citigroup is 2.12 times more volatile than London City Equities. It trades about 0.4 of its potential returns per unit of risk. London City Equities is currently generating about 0.3 per unit of risk. If you would invest  6,977  in Citigroup on October 22, 2024 and sell it today you would earn a total of  1,022  from holding Citigroup or generate 14.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.74%
Values	Daily Returns

Citigroup  vs.  London City Equities

Citigroup

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 17 (%) 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.

London City Equities

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in London City Equities are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, London City unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and London City

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

The idea behind Citigroup and London City Equities 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.