Correlation Between Citigroup and Invesco Small

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

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

Diversification Opportunities for Citigroup and Invesco Small

0.35

Correlation Coefficient

Citigroup  Invesco Small

Weak diversification

The 3 months correlation between Citigroup and Invesco is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Invesco Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Small Cap 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 Invesco Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Small Cap has no effect on the direction of Citigroup i.e., Citigroup and Invesco Small go up and down completely randomly.

Pair Corralation between Citigroup and Invesco Small

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.31 times more return on investment than Invesco Small. However, Citigroup is 1.31 times more volatile than Invesco Small Cap. It trades about 0.09 of its potential returns per unit of risk. Invesco Small Cap is currently generating about 0.04 per unit of risk. If you would invest  5,700  in Citigroup on October 12, 2024 and sell it today you would earn a total of  1,626  from holding Citigroup or generate 28.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.47%
Values	Daily Returns

Citigroup  vs.  Invesco Small Cap

Citigroup

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Invesco Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Invesco Small 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 Invesco Small

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

The idea behind Citigroup and Invesco Small Cap 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.