Correlation Between Citigroup and NYSE Composite

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

Diversification Opportunities for Citigroup and NYSE Composite

0.75
  Correlation Coefficient

Poor diversification

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

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.54 times more return on investment than NYSE Composite. However, Citigroup is 1.54 times more volatile than NYSE Composite. It trades about 0.51 of its potential returns per unit of risk. NYSE Composite is currently generating about 0.34 per unit of risk. If you would invest  4,578  in Citigroup on November 1, 2022 and sell it today you would earn a total of  589.00  from holding Citigroup or generate 12.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Citigroup  vs.  NYSE Composite

 Performance (%) 
       Timeline  

Citigroup and NYSE Composite Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Citigroup and NYSE Composite

The main advantage of trading using opposite Citigroup and NYSE Composite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, NYSE Composite 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 NYSE Composite will offset losses from the drop in NYSE Composite's long position.
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The idea behind Citigroup and NYSE Composite 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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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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