Correlation Between Citigroup and Stelco Holdings

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

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

Diversification Opportunities for Citigroup and Stelco Holdings

0.72

Correlation Coefficient

Citigroup  Stelco Holdings

Poor diversification

The 3 months correlation between Citigroup and Stelco is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Stelco Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stelco Holdings 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 Stelco Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stelco Holdings has no effect on the direction of Citigroup i.e., Citigroup and Stelco Holdings go up and down completely randomly.

Pair Corralation between Citigroup and Stelco Holdings

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.74 times less return on investment than Stelco Holdings. But when comparing it to its historical volatility, Citigroup is 3.09 times less risky than Stelco Holdings. It trades about 0.09 of its potential returns per unit of risk. Stelco Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,877  in Stelco Holdings on September 30, 2024 and sell it today you would earn a total of  2,064  from holding Stelco Holdings or generate 71.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	87.67%
Values	Daily Returns

Citigroup  vs.  Stelco Holdings

Citigroup

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Stelco Holdings

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Stelco Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Stelco Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Citigroup and Stelco Holdings

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

The idea behind Citigroup and Stelco Holdings 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.