Correlation Between Applied Materials and Citigroup

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

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

Diversification Opportunities for Applied Materials and Citigroup

-0.43

Correlation Coefficient

Applied Materials  Citigroup

Very good diversification

The 3 months correlation between Applied and Citigroup is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and Citigroup go up and down completely randomly.

Pair Corralation between Applied Materials and Citigroup

Assuming the 90 days trading horizon Applied Materials is expected to under-perform the Citigroup. In addition to that, Applied Materials is 3.61 times more volatile than Citigroup. It trades about -0.14 of its total potential returns per unit of risk. Citigroup is currently generating about 0.17 per unit of volatility. If you would invest  138,900  in Citigroup on September 15, 2024 and sell it today you would earn a total of  4,333  from holding Citigroup or generate 3.12% return on investment over 90 days.

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

Applied Materials  vs.  Citigroup

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Applied Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 fairly weak primary indicators, Citigroup showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and Citigroup

The main advantage of trading using opposite Applied Materials and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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 Applied Materials 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.