Correlation Between Citigroup and AG Mortgage

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

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

Diversification Opportunities for Citigroup and AG Mortgage

0.85

Correlation Coefficient

Citigroup  AG Mortgage

Very poor diversification

The 3 months correlation between Citigroup and MITN is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and AG Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AG Mortgage Investment 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 AG Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AG Mortgage Investment has no effect on the direction of Citigroup i.e., Citigroup and AG Mortgage go up and down completely randomly.

Pair Corralation between Citigroup and AG Mortgage

Taking into account the 90-day investment horizon Citigroup is expected to generate 9.02 times more return on investment than AG Mortgage. However, Citigroup is 9.02 times more volatile than AG Mortgage Investment. It trades about 0.41 of its potential returns per unit of risk. AG Mortgage Investment is currently generating about 0.29 per unit of risk. If you would invest  7,100  in Citigroup on October 25, 2024 and sell it today you would earn a total of  1,069  from holding Citigroup or generate 15.06% return on investment over 90 days.

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

Citigroup  vs.  AG Mortgage Investment

Citigroup

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 21 (%) 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.

AG Mortgage Investment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AG Mortgage Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, AG Mortgage is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and AG Mortgage

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

The idea behind Citigroup and AG Mortgage Investment 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.