Correlation Between Citigroup and Tata Motors

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

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

Diversification Opportunities for Citigroup and Tata Motors

-0.71

Correlation Coefficient

Citigroup  Tata Motors

Pay attention - limited upside

The 3 months correlation between Citigroup and Tata is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Tata Motors Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Motors Limited 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 Tata Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Motors Limited has no effect on the direction of Citigroup i.e., Citigroup and Tata Motors go up and down completely randomly.

Pair Corralation between Citigroup and Tata Motors

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.09 times more return on investment than Tata Motors. However, Citigroup is 1.09 times more volatile than Tata Motors Limited. It trades about 0.22 of its potential returns per unit of risk. Tata Motors Limited is currently generating about -0.11 per unit of risk. If you would invest  6,300  in Citigroup on October 22, 2024 and sell it today you would earn a total of  1,699  from holding Citigroup or generate 26.97% return on investment over 90 days.

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

Citigroup  vs.  Tata Motors Limited

Citigroup

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 17 (%) 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.

Tata Motors Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Motors Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Citigroup and Tata Motors

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

The idea behind Citigroup and Tata Motors Limited 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.