Correlation Between Citigroup and Royce Opportunity

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

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

Diversification Opportunities for Citigroup and Royce Opportunity

-0.24

Correlation Coefficient

Citigroup  Royce Opportunity

Very good diversification

The 3 months correlation between Citigroup and Royce is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Royce Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Opportunity 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 Royce Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Opportunity has no effect on the direction of Citigroup i.e., Citigroup and Royce Opportunity go up and down completely randomly.

Pair Corralation between Citigroup and Royce Opportunity

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.18 times more return on investment than Royce Opportunity. However, Citigroup is 1.18 times more volatile than Royce Opportunity Fund. It trades about 0.08 of its potential returns per unit of risk. Royce Opportunity Fund is currently generating about 0.01 per unit of risk. If you would invest  4,216  in Citigroup on December 5, 2024 and sell it today you would earn a total of  3,019  from holding Citigroup or generate 71.61% return on investment over 90 days.

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

Citigroup  vs.  Royce Opportunity Fund

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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Royce Opportunity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royce Opportunity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Citigroup and Royce Opportunity

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

The idea behind Citigroup and Royce Opportunity Fund 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.