Correlation Between Citigroup and HSBC Holdings

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

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

Diversification Opportunities for Citigroup and HSBC Holdings

0.92

Correlation Coefficient

Citigroup  HSBC Holdings

Almost no diversification

The 3 months correlation between Citigroup and HSBC is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and HSBC Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Holdings plc 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 HSBC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Holdings plc has no effect on the direction of Citigroup i.e., Citigroup and HSBC Holdings go up and down completely randomly.

Pair Corralation between Citigroup and HSBC Holdings

Assuming the 90 days trading horizon Citigroup is expected to generate 1.55 times more return on investment than HSBC Holdings. However, Citigroup is 1.55 times more volatile than HSBC Holdings plc. It trades about 0.23 of its potential returns per unit of risk. HSBC Holdings plc is currently generating about 0.24 per unit of risk. If you would invest  5,176  in Citigroup on September 15, 2024 and sell it today you would earn a total of  1,601  from holding Citigroup or generate 30.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.48%
Values	Daily Returns

Citigroup  vs.  HSBC Holdings plc

Citigroup

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 18 (%) 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.

HSBC Holdings plc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, HSBC Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and HSBC Holdings

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

The idea behind Citigroup and HSBC Holdings plc 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.