Correlation Between Citigroup and Masco

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

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

Diversification Opportunities for Citigroup and Masco

0.01

Correlation Coefficient

Citigroup  Masco

Significant diversification

The 3 months correlation between Citigroup and Masco is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Masco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masco 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 Masco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masco has no effect on the direction of Citigroup i.e., Citigroup and Masco go up and down completely randomly.

Pair Corralation between Citigroup and Masco

Taking into account the 90-day investment horizon Citigroup is expected to generate 7.05 times less return on investment than Masco. But when comparing it to its historical volatility, Citigroup is 2.33 times less risky than Masco. It trades about 0.04 of its potential returns per unit of risk. Masco is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  114,362  in Masco on December 20, 2024 and sell it today you would earn a total of  41,548  from holding Masco or generate 36.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Citigroup  vs.  Masco

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.

Masco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Masco showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Masco

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

The idea behind Citigroup and Masco 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.