Correlation Between Citigroup and Palo Alto

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

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

Diversification Opportunities for Citigroup and Palo Alto

0.85

Correlation Coefficient

Citigroup  Palo Alto

Very poor diversification

The 3 months correlation between Citigroup and Palo is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Palo Alto Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palo Alto Networks 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 Palo Alto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palo Alto Networks has no effect on the direction of Citigroup i.e., Citigroup and Palo Alto go up and down completely randomly.

Pair Corralation between Citigroup and Palo Alto

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.8 times less return on investment than Palo Alto. But when comparing it to its historical volatility, Citigroup is 1.2 times less risky than Palo Alto. It trades about 0.12 of its potential returns per unit of risk. Palo Alto Networks is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  321,465  in Palo Alto Networks on September 19, 2024 and sell it today you would earn a total of  82,535  from holding Palo Alto Networks or generate 25.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.83%
Values	Daily Returns

Citigroup  vs.  Palo Alto Networks

Citigroup

Risk-Adjusted Performance

9 of 100

Good

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 unfluctuating fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Palo Alto Networks

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Palo Alto Networks are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Palo Alto showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Palo Alto

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

The idea behind Citigroup and Palo Alto Networks 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 Valuation module to check real value of public entities based on technical and fundamental data.