Correlation Between Citigroup and Invesco KBW

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

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

Diversification Opportunities for Citigroup and Invesco KBW

0.94

Correlation Coefficient

Citigroup  Invesco KBW

Almost no diversification

The 3 months correlation between Citigroup and Invesco is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Invesco KBW Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW Bank 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 Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW Bank has no effect on the direction of Citigroup i.e., Citigroup and Invesco KBW go up and down completely randomly.

Pair Corralation between Citigroup and Invesco KBW

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.38 times less return on investment than Invesco KBW. In addition to that, Citigroup is 1.26 times more volatile than Invesco KBW Bank. It trades about 0.05 of its total potential returns per unit of risk. Invesco KBW Bank is currently generating about 0.08 per unit of volatility. If you would invest  5,196  in Invesco KBW Bank on January 26, 2024 and sell it today you would earn a total of  110.00  from holding Invesco KBW Bank or generate 2.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Citigroup  vs.  Invesco KBW Bank

Citigroup

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 14 (%) 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.

Invesco KBW Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco KBW Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Invesco KBW may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Citigroup and Invesco KBW

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

The idea behind Citigroup and Invesco KBW Bank 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.