Correlation Between Citigroup and Diamond Hill

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

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

Diversification Opportunities for Citigroup and Diamond Hill

0.72

Correlation Coefficient

Citigroup  Diamond Hill

Poor diversification

The 3 months correlation between Citigroup and Diamond is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Diamond Hill Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Short 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 Diamond Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Hill Short has no effect on the direction of Citigroup i.e., Citigroup and Diamond Hill go up and down completely randomly.

Pair Corralation between Citigroup and Diamond Hill

Taking into account the 90-day investment horizon Citigroup is expected to generate 20.6 times more return on investment than Diamond Hill. However, Citigroup is 20.6 times more volatile than Diamond Hill Short. It trades about 0.13 of its potential returns per unit of risk. Diamond Hill Short is currently generating about 0.18 per unit of risk. If you would invest  6,092  in Citigroup on September 3, 2024 and sell it today you would earn a total of  995.00  from holding Citigroup or generate 16.33% return on investment over 90 days.

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

Citigroup  vs.  Diamond Hill Short

Citigroup

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) 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.

Diamond Hill Short

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Short are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Diamond Hill is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and Diamond Hill

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

The idea behind Citigroup and Diamond Hill Short 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.