Correlation Between Citigroup and MSP Recovery

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

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

Diversification Opportunities for Citigroup and MSP Recovery

0.8

Correlation Coefficient

Citigroup  MSP Recovery

Very poor diversification

The 3 months correlation between Citigroup and MSP is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and MSP Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSP Recovery 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 MSP Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSP Recovery has no effect on the direction of Citigroup i.e., Citigroup and MSP Recovery go up and down completely randomly.

Pair Corralation between Citigroup and MSP Recovery

Taking into account the 90-day investment horizon Citigroup is expected to generate 30.49 times less return on investment than MSP Recovery. But when comparing it to its historical volatility, Citigroup is 39.97 times less risky than MSP Recovery. It trades about 0.07 of its potential returns per unit of risk. MSP Recovery is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,775  in MSP Recovery on October 23, 2024 and sell it today you would lose (2,565) from holding MSP Recovery or give up 92.43% of portfolio value over 90 days.

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

Citigroup  vs.  MSP Recovery

Citigroup

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 18 (%) 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.

MSP Recovery

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Citigroup and MSP Recovery

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

The idea behind Citigroup and MSP Recovery 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.