Correlation Between Citigroup and Reliance Power

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

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

Diversification Opportunities for Citigroup and Reliance Power

-0.27

Correlation Coefficient

Citigroup  Reliance Power

Very good diversification

The 3 months correlation between Citigroup and Reliance is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Reliance Power Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Power 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 Reliance Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Power has no effect on the direction of Citigroup i.e., Citigroup and Reliance Power go up and down completely randomly.

Pair Corralation between Citigroup and Reliance Power

Taking into account the 90-day investment horizon Citigroup is expected to under-perform the Reliance Power. But the stock apears to be less risky and, when comparing its historical volatility, Citigroup is 2.62 times less risky than Reliance Power. The stock trades about -0.04 of its potential returns per unit of risk. The Reliance Power Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,439  in Reliance Power Limited on October 8, 2024 and sell it today you would earn a total of  141.00  from holding Reliance Power Limited or generate 3.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Citigroup  vs.  Reliance Power Limited

Citigroup

Risk-Adjusted Performance

9 of 100

OK

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.

Reliance Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Power Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Reliance Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and Reliance Power

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

The idea behind Citigroup and Reliance Power Limited 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 Global Correlations module to find global opportunities by holding instruments from different markets.