Correlation Between Citigroup and Resolute Forest

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

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

Diversification Opportunities for Citigroup and Resolute Forest

0.58

Correlation Coefficient

Citigroup  Resolute Forest

Very weak diversification

The 3 months correlation between Citigroup and Resolute is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Resolute Forest Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Resolute Forest Products 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 Resolute Forest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Resolute Forest Products has no effect on the direction of Citigroup i.e., Citigroup and Resolute Forest go up and down completely randomly.

Pair Corralation between Citigroup and Resolute Forest

If you would invest  5,985  in Citigroup on September 25, 2024 and sell it today you would earn a total of  934.00  from holding Citigroup or generate 15.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.59%
Values	Daily Returns

Citigroup  vs.  Resolute Forest Products

Citigroup

Risk-Adjusted Performance

10 of 100

OK

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.

Resolute Forest Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Resolute Forest Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Resolute Forest is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Citigroup and Resolute Forest

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

The idea behind Citigroup and Resolute Forest Products 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.