Correlation Between Citigroup and Mitsui Chemicals

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

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

Diversification Opportunities for Citigroup and Mitsui Chemicals

-0.57

Correlation Coefficient

Citigroup  Mitsui Chemicals

Excellent diversification

The 3 months correlation between Citigroup and Mitsui is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Mitsui Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals 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 Mitsui Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Chemicals has no effect on the direction of Citigroup i.e., Citigroup and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between Citigroup and Mitsui Chemicals

Assuming the 90 days trading horizon Citigroup is expected to generate 0.91 times more return on investment than Mitsui Chemicals. However, Citigroup is 1.1 times less risky than Mitsui Chemicals. It trades about 0.17 of its potential returns per unit of risk. Mitsui Chemicals is currently generating about -0.07 per unit of risk. If you would invest  6,836  in Citigroup on October 9, 2024 and sell it today you would earn a total of  253.00  from holding Citigroup or generate 3.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Citigroup  vs.  Mitsui Chemicals

Citigroup

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 14 (%) 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.

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 latest fragile performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Citigroup and Mitsui Chemicals

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

The idea behind Citigroup and Mitsui Chemicals 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.