Correlation Between Citigroup and Eureka Design

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

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

Diversification Opportunities for Citigroup and Eureka Design

0.08

Correlation Coefficient

Citigroup  Eureka Design

Significant diversification

The 3 months correlation between Citigroup and Eureka is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Eureka Design Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eureka Design Public 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 Eureka Design. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eureka Design Public has no effect on the direction of Citigroup i.e., Citigroup and Eureka Design go up and down completely randomly.

Pair Corralation between Citigroup and Eureka Design

Taking into account the 90-day investment horizon Citigroup is expected to under-perform the Eureka Design. But the stock apears to be less risky and, when comparing its historical volatility, Citigroup is 1.79 times less risky than Eureka Design. The stock trades about -0.04 of its potential returns per unit of risk. The Eureka Design Public is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  74.00  in Eureka Design Public on December 11, 2024 and sell it today you would earn a total of  15.00  from holding Eureka Design Public or generate 20.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Citigroup  vs.  Eureka Design Public

Citigroup

Risk-Adjusted Performance

Very Weak

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

Eureka Design Public

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eureka Design Public are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Eureka Design sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Eureka Design

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

The idea behind Citigroup and Eureka Design Public 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.