Correlation Between Citigroup and Wells Fargo

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

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

Diversification Opportunities for Citigroup and Wells Fargo

0.95

Correlation Coefficient

Citigroup  Wells Fargo

Almost no diversification

The 3 months correlation between Citigroup and Wells is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Wells Fargo Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Opportunity 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 Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo Opportunity has no effect on the direction of Citigroup i.e., Citigroup and Wells Fargo go up and down completely randomly.

Pair Corralation between Citigroup and Wells Fargo

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.74 times more return on investment than Wells Fargo. However, Citigroup is 2.74 times more volatile than Wells Fargo Opportunity. It trades about 0.18 of its potential returns per unit of risk. Wells Fargo Opportunity is currently generating about 0.18 per unit of risk. If you would invest  5,788  in Citigroup on September 14, 2024 and sell it today you would earn a total of  1,313  from holding Citigroup or generate 22.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Citigroup  vs.  Wells Fargo Opportunity

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.

Wells Fargo Opportunity

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Opportunity are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Citigroup and Wells Fargo

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

The idea behind Citigroup and Wells Fargo Opportunity 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.