Correlation Between Exxon and Citigroup

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

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

Diversification Opportunities for Exxon and Citigroup

0.9

Correlation Coefficient

Exxon  Citigroup

Almost no diversification

The 3 months correlation between Exxon and Citigroup is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and Citigroup go up and down completely randomly.

Pair Corralation between Exxon and Citigroup

Considering the 90-day investment horizon Exxon is expected to generate 1.83 times less return on investment than Citigroup. But when comparing it to its historical volatility, Exxon Mobil Corp is 1.12 times less risky than Citigroup. It trades about 0.04 of its potential returns per unit of risk. Citigroup is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,847  in Citigroup on January 24, 2024 and sell it today you would earn a total of  1,420  from holding Citigroup or generate 29.3% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Citigroup

Exxon Mobil Corp

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Exxon displayed solid returns over the last few months and may actually be approaching a breakup point.

Citigroup

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 15 (%) 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.

Pair Trading with Exxon and Citigroup

The main advantage of trading using opposite Exxon and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 Exxon Mobil Corp 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.