Correlation Between Citigroup and Reach Subsea

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

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

Diversification Opportunities for Citigroup and Reach Subsea

0.4

Correlation Coefficient

Citigroup  Reach Subsea

Very weak diversification

The 3 months correlation between Citigroup and Reach is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Reach Subsea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reach Subsea 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 Reach Subsea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reach Subsea has no effect on the direction of Citigroup i.e., Citigroup and Reach Subsea go up and down completely randomly.

Pair Corralation between Citigroup and Reach Subsea

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.79 times more return on investment than Reach Subsea. However, Citigroup is 1.27 times less risky than Reach Subsea. It trades about 0.01 of its potential returns per unit of risk. Reach Subsea is currently generating about -0.03 per unit of risk. If you would invest  6,991  in Citigroup on December 29, 2024 and sell it today you would earn a total of  42.00  from holding Citigroup or generate 0.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.31%
Values	Daily Returns

Citigroup  vs.  Reach Subsea

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.

Reach Subsea

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reach Subsea has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Reach Subsea is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and Reach Subsea

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

The idea behind Citigroup and Reach Subsea 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 Stocks Directory module to find actively traded stocks across global markets.