Correlation Between Citigroup and Texas Gulf

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

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

Diversification Opportunities for Citigroup and Texas Gulf

-0.41

Correlation Coefficient

Citigroup  Texas Gulf

Very good diversification

The 3 months correlation between Citigroup and Texas is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Texas Gulf Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Gulf Energy 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 Texas Gulf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Gulf Energy has no effect on the direction of Citigroup i.e., Citigroup and Texas Gulf go up and down completely randomly.

Pair Corralation between Citigroup and Texas Gulf

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.0 times less return on investment than Texas Gulf. But when comparing it to its historical volatility, Citigroup is 1.15 times less risky than Texas Gulf. It trades about 0.06 of its potential returns per unit of risk. Texas Gulf Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  172,443  in Texas Gulf Energy on September 26, 2024 and sell it today you would earn a total of  83,184  from holding Texas Gulf Energy or generate 48.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.14%
Values	Daily Returns

Citigroup  vs.  Texas Gulf Energy

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 uncertain fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Texas Gulf Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Texas Gulf Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Texas Gulf is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Citigroup and Texas Gulf

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

The idea behind Citigroup and Texas Gulf Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.