Correlation Between Citigroup and Nasdaq 100

Can any of the company-specific risk be diversified away by investing in both Citigroup and Nasdaq 100 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 Nasdaq 100 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Citigroup and Nasdaq 100, you can compare the effects of market volatilities on Citigroup and Nasdaq 100 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 Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and Nasdaq 100.

Diversification Opportunities for Citigroup and Nasdaq 100

0.9

Correlation Coefficient

Citigroup  Nasdaq 100

Almost no diversification

The 3 months correlation between Citigroup and Nasdaq is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 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 Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 has no effect on the direction of Citigroup i.e., Citigroup and Nasdaq 100 go up and down completely randomly.

Pair Corralation between Citigroup and Nasdaq 100

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.29 times less return on investment than Nasdaq 100. In addition to that, Citigroup is 1.43 times more volatile than Nasdaq 100. It trades about 0.07 of its total potential returns per unit of risk. Nasdaq 100 is currently generating about 0.13 per unit of volatility. If you would invest  1,104,035  in Nasdaq 100 on September 27, 2024 and sell it today you would earn a total of  1,072,796  from holding Nasdaq 100 or generate 97.17% return on investment over 90 days.

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

Citigroup  vs.  Nasdaq 100

Pair Trading with Citigroup and Nasdaq 100

The main advantage of trading using opposite Citigroup and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, Nasdaq 100 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 Nasdaq 100 will offset losses from the drop in Nasdaq 100's long position.

The idea behind Citigroup and Nasdaq 100 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.