Correlation Between Citigroup and Tokyo Electron

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

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

Diversification Opportunities for Citigroup and Tokyo Electron

0.4

Correlation Coefficient

Citigroup  Tokyo Electron

Very weak diversification

The 3 months correlation between Citigroup and Tokyo is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Tokyo Electron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron 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 Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of Citigroup i.e., Citigroup and Tokyo Electron go up and down completely randomly.

Pair Corralation between Citigroup and Tokyo Electron

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.52 times more return on investment than Tokyo Electron. However, Citigroup is 1.94 times less risky than Tokyo Electron. It trades about 0.0 of its potential returns per unit of risk. Tokyo Electron is currently generating about -0.18 per unit of risk. If you would invest  6,169  in Citigroup on February 3, 2024 and sell it today you would lose (18.00) from holding Citigroup or give up 0.29% of portfolio value over 90 days.

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

Citigroup  vs.  Tokyo Electron

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.

Tokyo Electron

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Electron are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Tokyo Electron reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Tokyo Electron

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

The idea behind Citigroup and Tokyo Electron 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.