Correlation Between Citigroup and TPI Composites

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

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

Diversification Opportunities for Citigroup and TPI Composites

-0.85

Correlation Coefficient

Citigroup  TPI Composites

Pay attention - limited upside

The 3 months correlation between Citigroup and TPI is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and TPI Composites in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPI Composites 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 TPI Composites. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPI Composites has no effect on the direction of Citigroup i.e., Citigroup and TPI Composites go up and down completely randomly.

Pair Corralation between Citigroup and TPI Composites

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.34 times more return on investment than TPI Composites. However, Citigroup is 2.95 times less risky than TPI Composites. It trades about 0.2 of its potential returns per unit of risk. TPI Composites is currently generating about -0.26 per unit of risk. If you would invest  5,716  in Citigroup on September 13, 2024 and sell it today you would earn a total of  1,480  from holding Citigroup or generate 25.89% return on investment over 90 days.

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

Citigroup  vs.  TPI Composites

Citigroup

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 15 (%) 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.

TPI Composites

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TPI Composites has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Citigroup and TPI Composites

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

The idea behind Citigroup and TPI Composites 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.