Correlation Between Citigroup and DOW

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Citigroup and DOW 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 DOW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Citigroup and DOW, you can compare the effects of market volatilities on Citigroup and DOW 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 DOW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and DOW.

Diversification Opportunities for Citigroup and DOW

0.33
  Correlation Coefficient

Weak diversification

The 3 months correlation between Citigroup and DOW is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW 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 DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of Citigroup i.e., Citigroup and DOW go up and down completely randomly.
    Optimize

Pair Corralation between Citigroup and DOW

Taking into account the 90-day investment horizon Citigroup is expected to under-perform the DOW. In addition to that, Citigroup is 1.66 times more volatile than DOW. It trades about -0.07 of its total potential returns per unit of risk. DOW is currently generating about -0.04 per unit of volatility. If you would invest  3,539,984  in DOW on February 26, 2022 and sell it today you would lose (276,265)  from holding DOW or give up 7.8% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Citigroup  vs.  DOW

 Performance (%) 
      Timeline 

Citigroup and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

Citigroup

Pair trading matchups for Citigroup

DOW

Pair trading matchups for DOW

Vmware vs. DOW
Citigroup vs. DOW
COSCO SHIPPING vs. DOW
HITHINK ROYALFLUSH vs. DOW
Meta Platforms vs. DOW
Atlassian Cls vs. DOW
Ford vs. DOW
Walker Dunlop vs. DOW
Salesforce vs. DOW
LINGYI ITECH vs. DOW
Visa vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Pair Trading with Citigroup and DOW

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

Citigroup

Pair trading matchups for Citigroup

The idea behind Citigroup and DOW 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.

DOW

Pair trading matchups for DOW

Atlassian Cls vs. DOW
Sentinelone Inc vs. DOW
BANK OF NINGBO vs. DOW
LINGYI ITECH vs. DOW
Otp Bank vs. DOW
Vmware vs. DOW
COSCO SHIPPING vs. DOW
Ford vs. DOW
HITHINK ROYALFLUSH vs. DOW
GM vs. DOW
Salesforce vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

Other Complementary Tools

Portfolio Diagnostics
Use generated alerts and portfolio events aggregator to diagnose current holdings
Go
Transaction History
View history of all your transactions and understand their impact on performance
Go
Instant Ratings
Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance
Go
Equity Analysis
Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities
Go
Equity Search
Search for actively traded equities including funds and ETFs from over 30 global markets
Go
Fund Screener
Find actively-traded funds from around the world traded on over 30 global exchanges
Go