Correlation Between Citigroup and McGrath RentCorp

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

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

Diversification Opportunities for Citigroup and McGrath RentCorp

0.63

Correlation Coefficient

Citigroup  McGrath RentCorp

Poor diversification

The 3 months correlation between Citigroup and McGrath is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and McGrath RentCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McGrath RentCorp 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 McGrath RentCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McGrath RentCorp has no effect on the direction of Citigroup i.e., Citigroup and McGrath RentCorp go up and down completely randomly.

Pair Corralation between Citigroup and McGrath RentCorp

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.02 times more return on investment than McGrath RentCorp. However, Citigroup is 1.02 times more volatile than McGrath RentCorp. It trades about 0.06 of its potential returns per unit of risk. McGrath RentCorp is currently generating about 0.03 per unit of risk. If you would invest  4,708  in Citigroup on October 11, 2024 and sell it today you would earn a total of  2,618  from holding Citigroup or generate 55.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Citigroup  vs.  McGrath RentCorp

Citigroup

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 8 (%) 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.

McGrath RentCorp

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Citigroup and McGrath RentCorp

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

The idea behind Citigroup and McGrath RentCorp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .