Correlation Between Citigroup and Southern Michigan

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

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

Diversification Opportunities for Citigroup and Southern Michigan

0.94

Correlation Coefficient

Citigroup  Southern Michigan

Almost no diversification

The 3 months correlation between Citigroup and Southern is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Southern Michigan Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Michigan Bancorp 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 Southern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Michigan Bancorp has no effect on the direction of Citigroup i.e., Citigroup and Southern Michigan go up and down completely randomly.

Pair Corralation between Citigroup and Southern Michigan

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.05 times more return on investment than Southern Michigan. However, Citigroup is 1.05 times more volatile than Southern Michigan Bancorp. It trades about 0.12 of its potential returns per unit of risk. Southern Michigan Bancorp is currently generating about 0.07 per unit of risk. If you would invest  4,364  in Citigroup on September 14, 2024 and sell it today you would earn a total of  2,737  from holding Citigroup or generate 62.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	88.85%
Values	Daily Returns

Citigroup  vs.  Southern Michigan Bancorp

Citigroup

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 13 (%) 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.

Southern Michigan Bancorp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Michigan Bancorp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, Southern Michigan exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Southern Michigan

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

The idea behind Citigroup and Southern Michigan Bancorp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.