Correlation Between Citigroup and Mastercard

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

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

Diversification Opportunities for Citigroup and Mastercard

0.65

Correlation Coefficient

Citigroup  Mastercard

Poor diversification

The 3 months correlation between Citigroup and Mastercard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Mastercard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard 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 Mastercard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard has no effect on the direction of Citigroup i.e., Citigroup and Mastercard go up and down completely randomly.

Pair Corralation between Citigroup and Mastercard

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.65 times less return on investment than Mastercard. In addition to that, Citigroup is 1.67 times more volatile than Mastercard. It trades about 0.03 of its total potential returns per unit of risk. Mastercard is currently generating about 0.09 per unit of volatility. If you would invest  52,476  in Mastercard on December 29, 2024 and sell it today you would earn a total of  3,281  from holding Mastercard or generate 6.25% return on investment over 90 days.

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

Citigroup  vs.  Mastercard

Citigroup

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 2 (%) 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Mastercard

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mastercard may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Citigroup and Mastercard

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

The idea behind Citigroup and Mastercard 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.