Correlation Between Citigroup and BP Plc

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

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

Diversification Opportunities for Citigroup and BP Plc

-0.35

Correlation Coefficient

Citigroup  BP Plc

Very good diversification

The 3 months correlation between Citigroup and BSU is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc 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 BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Citigroup i.e., Citigroup and BP Plc go up and down completely randomly.

Pair Corralation between Citigroup and BP Plc

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.18 times more return on investment than BP Plc. However, Citigroup is 1.18 times more volatile than BP plc. It trades about 0.18 of its potential returns per unit of risk. BP plc is currently generating about 0.01 per unit of risk. If you would invest  5,788  in Citigroup on September 16, 2024 and sell it today you would earn a total of  1,313  from holding Citigroup or generate 22.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Citigroup  vs.  BP plc

Citigroup

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 13 (%) 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.

BP plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BP Plc is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Citigroup and BP Plc

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

The idea behind Citigroup and BP plc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.