Correlation Between Citigroup and Light Wonder

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

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

Diversification Opportunities for Citigroup and Light Wonder

0.38

Correlation Coefficient

Citigroup  Light Wonder

Weak diversification

The 3 months correlation between Citigroup and Light is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Light Wonder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Light Wonder 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 Light Wonder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Light Wonder has no effect on the direction of Citigroup i.e., Citigroup and Light Wonder go up and down completely randomly.

Pair Corralation between Citigroup and Light Wonder

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.01 times less return on investment than Light Wonder. But when comparing it to its historical volatility, Citigroup is 1.45 times less risky than Light Wonder. It trades about 0.09 of its potential returns per unit of risk. Light Wonder is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  15,219  in Light Wonder on December 3, 2024 and sell it today you would earn a total of  2,797  from holding Light Wonder or generate 18.38% 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.  Light Wonder

Citigroup

Risk-Adjusted Performance

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

Light Wonder

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Light Wonder are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Light Wonder unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Light Wonder

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

The idea behind Citigroup and Light Wonder 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 Anywhere module to track or share privately all of your investments from the convenience of any device.