Correlation Between Citigroup and Bakken Water

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

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

Diversification Opportunities for Citigroup and Bakken Water

0.4

Correlation Coefficient

Citigroup  Bakken Water

Very weak diversification

The 3 months correlation between Citigroup and Bakken is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Bakken Water Transfer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bakken Water Transfer 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 Bakken Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bakken Water Transfer has no effect on the direction of Citigroup i.e., Citigroup and Bakken Water go up and down completely randomly.

Pair Corralation between Citigroup and Bakken Water

Taking into account the 90-day investment horizon Citigroup is expected to generate 8.42 times less return on investment than Bakken Water. But when comparing it to its historical volatility, Citigroup is 7.68 times less risky than Bakken Water. It trades about 0.16 of its potential returns per unit of risk. Bakken Water Transfer is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1.80  in Bakken Water Transfer on September 17, 2024 and sell it today you would earn a total of  4.20  from holding Bakken Water Transfer or generate 233.33% return on investment over 90 days.

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

Citigroup  vs.  Bakken Water Transfer

Citigroup

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 12 (%) 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.

Bakken Water Transfer

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bakken Water Transfer are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Bakken Water showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Bakken Water

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

The idea behind Citigroup and Bakken Water Transfer 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 Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..