Correlation Between Citigroup and Shell PLC

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

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

Diversification Opportunities for Citigroup and Shell PLC

0.1

Correlation Coefficient

Citigroup  Shell PLC

Average diversification

The 3 months correlation between Citigroup and Shell is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Shell PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC ADR 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 Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC ADR has no effect on the direction of Citigroup i.e., Citigroup and Shell PLC go up and down completely randomly.

Pair Corralation between Citigroup and Shell PLC

Taking into account the 90-day investment horizon Citigroup is expected to generate 9.77 times less return on investment than Shell PLC. In addition to that, Citigroup is 1.87 times more volatile than Shell PLC ADR. It trades about 0.01 of its total potential returns per unit of risk. Shell PLC ADR is currently generating about 0.27 per unit of volatility. If you would invest  6,112  in Shell PLC ADR on December 28, 2024 and sell it today you would earn a total of  1,161  from holding Shell PLC ADR or generate 19.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Citigroup  vs.  Shell PLC ADR

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

Shell PLC ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC ADR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating technical and fundamental indicators, Shell PLC disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Shell PLC

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

The idea behind Citigroup and Shell PLC ADR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.