Correlation Between Citigroup and Tata Steel

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

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

Diversification Opportunities for Citigroup and Tata Steel

-0.61

Correlation Coefficient

Citigroup  Tata Steel

Excellent diversification

The 3 months correlation between Citigroup and Tata is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Tata Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Steel 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 Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Steel Limited has no effect on the direction of Citigroup i.e., Citigroup and Tata Steel go up and down completely randomly.

Pair Corralation between Citigroup and Tata Steel

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.99 times more return on investment than Tata Steel. However, Citigroup is 1.01 times less risky than Tata Steel. It trades about 0.13 of its potential returns per unit of risk. Tata Steel Limited is currently generating about -0.03 per unit of risk. If you would invest  6,092  in Citigroup on September 3, 2024 and sell it today you would earn a total of  995.00  from holding Citigroup or generate 16.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Citigroup  vs.  Tata Steel Limited

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.

Tata Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Tata Steel is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Citigroup and Tata Steel

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

The idea behind Citigroup and Tata Steel 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.