Correlation Between Citigroup and Nextmart

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

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

Diversification Opportunities for Citigroup and Nextmart

-0.33

Correlation Coefficient

Citigroup  Nextmart

Very good diversification

The 3 months correlation between Citigroup and Nextmart is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Nextmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextmart 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 Nextmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextmart has no effect on the direction of Citigroup i.e., Citigroup and Nextmart go up and down completely randomly.

Pair Corralation between Citigroup and Nextmart

Taking into account the 90-day investment horizon Citigroup is expected to generate 34.53 times less return on investment than Nextmart. But when comparing it to its historical volatility, Citigroup is 24.64 times less risky than Nextmart. It trades about 0.06 of its potential returns per unit of risk. Nextmart is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.10  in Nextmart on October 4, 2024 and sell it today you would lose (1.04) from holding Nextmart or give up 94.55% of portfolio value over 90 days.

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

Citigroup  vs.  Nextmart

Citigroup

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nextmart

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nextmart are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, Nextmart reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Nextmart

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

The idea behind Citigroup and Nextmart 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.