Correlation Between GM and Citigroup
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Citigroup into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Citigroup, you can compare the effects of market volatilities on GM 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 GM with a short position of Citigroup. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Citigroup.
Diversification Opportunities for GM and Citigroup
Almost no diversification
The 3 months correlation between GM and Citigroup is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and GM 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 General Motors 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 GM i.e., GM and Citigroup go up and down completely randomly.
Pair Corralation between GM and Citigroup
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Citigroup. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.41 times less risky than Citigroup. The stock trades about -0.02 of its potential returns per unit of risk. The Citigroup is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 101,501 in Citigroup on January 24, 2024 and sell it today you would earn a total of 2,699 from holding Citigroup or generate 2.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.0% |
| Values | Daily Returns |
General Motors vs. Citigroup
Performance |
| Timeline |
| General Motors |
| Citigroup |
GM and Citigroup Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Citigroup
The main advantage of trading using opposite GM and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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.| Citigroup vs. Verizon Communications | Citigroup vs. Martin Marietta Materials | Citigroup vs. Hoteles City Express | Citigroup vs. McEwen Mining |
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.
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