Correlation Between Wells Fargo and Citigroup

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

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

Diversification Opportunities for Wells Fargo and Citigroup

0.93

Correlation Coefficient

Wells Fargo  Citigroup

Almost no diversification

The 3 months correlation between Wells and Citigroup is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and Wells Fargo 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 Wells Fargo 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 Wells Fargo i.e., Wells Fargo and Citigroup go up and down completely randomly.

Pair Corralation between Wells Fargo and Citigroup

Considering the 90-day investment horizon Wells Fargo is expected to generate 1.22 times more return on investment than Citigroup. However, Wells Fargo is 1.22 times more volatile than Citigroup. It trades about 0.2 of its potential returns per unit of risk. Citigroup is currently generating about 0.11 per unit of risk. If you would invest  5,814  in Wells Fargo on August 30, 2024 and sell it today you would earn a total of  1,907  from holding Wells Fargo or generate 32.8% return on investment over 90 days.

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

Wells Fargo  vs.  Citigroup

Wells Fargo

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Wells Fargo exhibited solid returns over the last few months and may actually be approaching a breakup point.

Citigroup

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 8 (%) 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.

Pair Trading with Wells Fargo and Citigroup

The main advantage of trading using opposite Wells Fargo and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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 Wells Fargo 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.

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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.