Correlation Between Mitsui Chemicals and Citigroup

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

By analyzing existing cross correlation between Mitsui Chemicals and Citigroup, you can compare the effects of market volatilities on Mitsui Chemicals and Citigroup 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 Mitsui Chemicals with a short position of Citigroup. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mitsui Chemicals and Citigroup.

Diversification Opportunities for Mitsui Chemicals and Citigroup

-0.14

Correlation Coefficient

Mitsui Chemicals  Citigroup

Good diversification

The 3 months correlation between Mitsui and Citigroup is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Mitsui Chemicals and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and Mitsui Chemicals 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 Mitsui Chemicals are associated (or correlated) with Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of Mitsui Chemicals i.e., Mitsui Chemicals and Citigroup go up and down completely randomly.

Pair Corralation between Mitsui Chemicals and Citigroup

Assuming the 90 days trading horizon Mitsui Chemicals is expected to under-perform the Citigroup. But the stock apears to be less risky and, when comparing its historical volatility, Mitsui Chemicals is 1.09 times less risky than Citigroup. The stock trades about -0.03 of its potential returns per unit of risk. The Citigroup is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  5,811  in Citigroup on October 23, 2024 and sell it today you would earn a total of  2,034  from holding Citigroup or generate 35.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Mitsui Chemicals  vs.  Citigroup

Mitsui Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Citigroup

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mitsui Chemicals and Citigroup

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

The idea behind Mitsui Chemicals and Citigroup 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.