Correlation Between Citigroup and TMT Acquisition

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

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

Diversification Opportunities for Citigroup and TMT Acquisition

0.02

Correlation Coefficient

Citigroup  TMT Acquisition

Significant diversification

The 3 months correlation between Citigroup and TMT is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and TMT Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMT Acquisition Corp 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 TMT Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMT Acquisition Corp has no effect on the direction of Citigroup i.e., Citigroup and TMT Acquisition go up and down completely randomly.

Pair Corralation between Citigroup and TMT Acquisition

Taking into account the 90-day investment horizon Citigroup is expected to generate 9.81 times less return on investment than TMT Acquisition. But when comparing it to its historical volatility, Citigroup is 8.03 times less risky than TMT Acquisition. It trades about 0.07 of its potential returns per unit of risk. TMT Acquisition Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  22.00  in TMT Acquisition Corp on October 9, 2024 and sell it today you would earn a total of  16.00  from holding TMT Acquisition Corp or generate 72.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	43.03%
Values	Daily Returns

Citigroup  vs.  TMT Acquisition Corp

Citigroup

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) 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.

TMT Acquisition Corp

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days TMT Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively inconsistent fundamental indicators, TMT Acquisition reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and TMT Acquisition

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

The idea behind Citigroup and TMT Acquisition Corp 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.