Correlation Between American Express and Citigroup

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

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

Diversification Opportunities for American Express and Citigroup

0.83

Correlation Coefficient

American Express  Citigroup

Very poor diversification

The 3 months correlation between American and Citigroup is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and American Express 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 American Express 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 American Express i.e., American Express and Citigroup go up and down completely randomly.

Pair Corralation between American Express and Citigroup

Considering the 90-day investment horizon American Express is expected to generate 0.98 times more return on investment than Citigroup. However, American Express is 1.02 times less risky than Citigroup. It trades about 0.04 of its potential returns per unit of risk. Citigroup is currently generating about 0.03 per unit of risk. If you would invest  16,407  in American Express on January 20, 2024 and sell it today you would earn a total of  5,343  from holding American Express or generate 32.57% return on investment over 90 days.

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

American Express  vs.  Citigroup

American Express

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Citigroup

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with American Express and Citigroup

The main advantage of trading using opposite American Express and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express 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 American Express 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.