Correlation Between Citigroup and Pacer Financial

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

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

Diversification Opportunities for Citigroup and Pacer Financial

0.83

Correlation Coefficient

Citigroup  Pacer Financial

Very poor diversification

The 3 months correlation between Citigroup and Pacer is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Pacer Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Financial 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 Pacer Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Financial has no effect on the direction of Citigroup i.e., Citigroup and Pacer Financial go up and down completely randomly.

Pair Corralation between Citigroup and Pacer Financial

Taking into account the 90-day investment horizon Citigroup is expected to generate 6.15 times more return on investment than Pacer Financial. However, Citigroup is 6.15 times more volatile than Pacer Financial. It trades about 0.16 of its potential returns per unit of risk. Pacer Financial is currently generating about 0.2 per unit of risk. If you would invest  5,937  in Citigroup on September 18, 2024 and sell it today you would earn a total of  1,175  from holding Citigroup or generate 19.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	29.69%
Values	Daily Returns

Citigroup  vs.  Pacer Financial

Citigroup

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 12 (%) 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.

Pacer Financial

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Pacer Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Pacer Financial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Citigroup and Pacer Financial

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

The idea behind Citigroup and Pacer Financial 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.