Correlation Between Citigroup and Toll Brothers

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

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

Diversification Opportunities for Citigroup and Toll Brothers

0.34

Correlation Coefficient

Citigroup  Toll Brothers

Weak diversification

The 3 months correlation between Citigroup and Toll is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Toll Brothers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toll Brothers 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 Toll Brothers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toll Brothers has no effect on the direction of Citigroup i.e., Citigroup and Toll Brothers go up and down completely randomly.

Pair Corralation between Citigroup and Toll Brothers

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.55 times more return on investment than Toll Brothers. However, Citigroup is 1.82 times less risky than Toll Brothers. It trades about -0.05 of its potential returns per unit of risk. Toll Brothers is currently generating about -0.62 per unit of risk. If you would invest  7,075  in Citigroup on September 24, 2024 and sell it today you would lose (98.00) from holding Citigroup or give up 1.39% of portfolio value over 90 days.

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

Citigroup  vs.  Toll Brothers

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.

Toll Brothers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toll Brothers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Citigroup and Toll Brothers

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

The idea behind Citigroup and Toll Brothers 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.