Correlation Between Citigroup and Microchip Technology

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

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

Diversification Opportunities for Citigroup and Microchip Technology

-0.78

Correlation Coefficient

Citigroup  Microchip Technology

Pay attention - limited upside

The 3 months correlation between Citigroup and Microchip is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Microchip Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology 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 Microchip Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microchip Technology has no effect on the direction of Citigroup i.e., Citigroup and Microchip Technology go up and down completely randomly.

Pair Corralation between Citigroup and Microchip Technology

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.9 times more return on investment than Microchip Technology. However, Citigroup is 1.11 times less risky than Microchip Technology. It trades about 0.14 of its potential returns per unit of risk. Microchip Technology is currently generating about -0.06 per unit of risk. If you would invest  6,042  in Citigroup on September 4, 2024 and sell it today you would earn a total of  1,097  from holding Citigroup or generate 18.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.92%
Values	Daily Returns

Citigroup  vs.  Microchip Technology

Citigroup

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 11 (%) 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.

Microchip Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microchip Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Citigroup and Microchip Technology

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

The idea behind Citigroup and Microchip Technology 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.

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 the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.