Correlation Between Citigroup and Metropolitan West

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

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

Diversification Opportunities for Citigroup and Metropolitan West

-0.14

Correlation Coefficient

Citigroup  Metropolitan West

Good diversification

The 3 months correlation between Citigroup and Metropolitan is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Metropolitan West Unconstraine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West 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 Metropolitan West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan West has no effect on the direction of Citigroup i.e., Citigroup and Metropolitan West go up and down completely randomly.

Pair Corralation between Citigroup and Metropolitan West

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.29 times less return on investment than Metropolitan West. In addition to that, Citigroup is 10.35 times more volatile than Metropolitan West Unconstrained. It trades about 0.01 of its total potential returns per unit of risk. Metropolitan West Unconstrained is currently generating about 0.2 per unit of volatility. If you would invest  1,013  in Metropolitan West Unconstrained on December 30, 2024 and sell it today you would earn a total of  24.00  from holding Metropolitan West Unconstrained or generate 2.37% return on investment over 90 days.

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

Citigroup  vs.  Metropolitan West Unconstraine

Citigroup

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 1 (%) 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Metropolitan West

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metropolitan West Unconstrained are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Metropolitan West is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and Metropolitan West

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

The idea behind Citigroup and Metropolitan West Unconstrained 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.