Correlation Between Citigroup and NEXTDC

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

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

Diversification Opportunities for Citigroup and NEXTDC

0.21

Correlation Coefficient

Citigroup  NEXTDC

Modest diversification

The 3 months correlation between Citigroup and NEXTDC is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and NEXTDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC Limited 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 NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC Limited has no effect on the direction of Citigroup i.e., Citigroup and NEXTDC go up and down completely randomly.

Pair Corralation between Citigroup and NEXTDC

Taking into account the 90-day investment horizon Citigroup is expected to generate 24.72 times less return on investment than NEXTDC. But when comparing it to its historical volatility, Citigroup is 2.15 times less risky than NEXTDC. It trades about 0.02 of its potential returns per unit of risk. NEXTDC Limited is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  888.00  in NEXTDC Limited on September 26, 2024 and sell it today you would earn a total of  118.00  from holding NEXTDC Limited or generate 13.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Citigroup  vs.  NEXTDC Limited

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.

NEXTDC Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEXTDC Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, NEXTDC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and NEXTDC

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

The idea behind Citigroup and NEXTDC Limited 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.