Correlation Between Citigroup and ROK Resources

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

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

Diversification Opportunities for Citigroup and ROK Resources

-0.02

Correlation Coefficient

Citigroup  ROK Resources

Good diversification

The 3 months correlation between Citigroup and ROK is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and ROK Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ROK Resources 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 ROK Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ROK Resources has no effect on the direction of Citigroup i.e., Citigroup and ROK Resources go up and down completely randomly.

Pair Corralation between Citigroup and ROK Resources

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.52 times more return on investment than ROK Resources. However, Citigroup is 1.94 times less risky than ROK Resources. It trades about 0.07 of its potential returns per unit of risk. ROK Resources is currently generating about -0.04 per unit of risk. If you would invest  4,733  in Citigroup on October 26, 2024 and sell it today you would earn a total of  3,415  from holding Citigroup or generate 72.15% return on investment over 90 days.

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

Citigroup  vs.  ROK Resources

Citigroup

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 19 (%) 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.

ROK Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ROK Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ROK Resources is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Citigroup and ROK Resources

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

The idea behind Citigroup and ROK Resources 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 Transaction History module to view history of all your transactions and understand their impact on performance.