Correlation Between Citigroup and LOréal SA

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

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

Diversification Opportunities for Citigroup and LOréal SA

0.08

Correlation Coefficient

Citigroup  LOréal SA

Significant diversification

The 3 months correlation between Citigroup and LOréal is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOréal SA 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 LOréal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOréal SA has no effect on the direction of Citigroup i.e., Citigroup and LOréal SA go up and down completely randomly.

Pair Corralation between Citigroup and LOréal SA

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.52 times less return on investment than LOréal SA. In addition to that, Citigroup is 1.31 times more volatile than LOral SA. It trades about 0.04 of its total potential returns per unit of risk. LOral SA is currently generating about 0.09 per unit of volatility. If you would invest  33,565  in LOral SA on December 20, 2024 and sell it today you would earn a total of  2,435  from holding LOral SA or generate 7.25% return on investment over 90 days.

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

Citigroup  vs.  LOral SA

Citigroup

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Citigroup is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

LOréal SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LOral SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LOréal SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Citigroup and LOréal SA

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

The idea behind Citigroup and LOral SA 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.