Correlation Between Citigroup and East West

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

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

Diversification Opportunities for Citigroup and East West

0.75

Correlation Coefficient

Citigroup  East West

Poor diversification

The 3 months correlation between Citigroup and East is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and East West Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East West Bancorp 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 East West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East West Bancorp has no effect on the direction of Citigroup i.e., Citigroup and East West go up and down completely randomly.

Pair Corralation between Citigroup and East West

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.84 times more return on investment than East West. However, Citigroup is 1.19 times less risky than East West. It trades about 0.0 of its potential returns per unit of risk. East West Bancorp is currently generating about -0.09 per unit of risk. If you would invest  5,863  in Citigroup on January 17, 2024 and sell it today you would lose (7.00) from holding Citigroup or give up 0.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Citigroup  vs.  East West Bancorp

Citigroup

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 13 (%) 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.

East West Bancorp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, East West may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Citigroup and East West

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

The idea behind Citigroup and East West Bancorp 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.