Correlation Between Citigroup and Superior Drilling

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

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

Diversification Opportunities for Citigroup and Superior Drilling

-0.32

Correlation Coefficient

Citigroup  Superior Drilling

Very good diversification

The 3 months correlation between Citigroup and Superior is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Superior Drilling Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Superior Drilling 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 Superior Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Superior Drilling has no effect on the direction of Citigroup i.e., Citigroup and Superior Drilling go up and down completely randomly.

Pair Corralation between Citigroup and Superior Drilling

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.25 times more return on investment than Superior Drilling. However, Citigroup is 4.08 times less risky than Superior Drilling. It trades about 0.07 of its potential returns per unit of risk. Superior Drilling Products is currently generating about -0.02 per unit of risk. If you would invest  4,162  in Citigroup on September 19, 2024 and sell it today you would earn a total of  2,650  from holding Citigroup or generate 63.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	80.65%
Values	Daily Returns

Citigroup  vs.  Superior Drilling Products

Citigroup

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Superior Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Superior Drilling Products has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Superior Drilling is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Citigroup and Superior Drilling

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

The idea behind Citigroup and Superior Drilling 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.