Correlation Between Citigroup and United Bank

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

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

Diversification Opportunities for Citigroup and United Bank

0.51

Correlation Coefficient

Citigroup  United Bank

Very weak diversification

The 3 months correlation between Citigroup and United is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and United Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Bank 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 United Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Bank has no effect on the direction of Citigroup i.e., Citigroup and United Bank go up and down completely randomly.

Pair Corralation between Citigroup and United Bank

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.92 times less return on investment than United Bank. In addition to that, Citigroup is 1.21 times more volatile than United Bank. It trades about 0.03 of its total potential returns per unit of risk. United Bank is currently generating about 0.11 per unit of volatility. If you would invest  36,801  in United Bank on December 29, 2024 and sell it today you would earn a total of  4,288  from holding United Bank or generate 11.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Citigroup  vs.  United Bank

Citigroup

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Citigroup is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

United Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, United Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Citigroup and United Bank

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

The idea behind Citigroup and United Bank 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.