Correlation Between Citigroup and Melrose Industries

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

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

Diversification Opportunities for Citigroup and Melrose Industries

0.85

Correlation Coefficient

Citigroup  Melrose Industries

Very poor diversification

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

Pair Corralation between Citigroup and Melrose Industries

Taking into account the 90-day investment horizon Citigroup is expected to generate 21.24 times less return on investment than Melrose Industries. But when comparing it to its historical volatility, Citigroup is 13.7 times less risky than Melrose Industries. It trades about 0.07 of its potential returns per unit of risk. Melrose Industries PLC is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  161.00  in Melrose Industries PLC on September 26, 2024 and sell it today you would earn a total of  520.00  from holding Melrose Industries PLC or generate 322.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	72.78%
Values	Daily Returns

Citigroup  vs.  Melrose Industries PLC

Citigroup

Risk-Adjusted Performance

10 of 100

Good

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

Melrose Industries PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Melrose Industries

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

The idea behind Citigroup and Melrose Industries PLC 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.