Correlation Between Citigroup and SPDR Dow

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

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

Diversification Opportunities for Citigroup and SPDR Dow

0.88

Correlation Coefficient

Citigroup  SPDR Dow

Very poor diversification

The 3 months correlation between Citigroup and SPDR is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones 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 SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of Citigroup i.e., Citigroup and SPDR Dow go up and down completely randomly.

Pair Corralation between Citigroup and SPDR Dow

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.76 times more return on investment than SPDR Dow. However, Citigroup is 1.32 times less risky than SPDR Dow. It trades about 0.18 of its potential returns per unit of risk. SPDR Dow Jones is currently generating about -0.02 per unit of risk. If you would invest  6,980  in Citigroup on September 12, 2024 and sell it today you would earn a total of  224.00  from holding Citigroup or generate 3.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	90.91%
Values	Daily Returns

Citigroup  vs.  SPDR Dow Jones

Citigroup

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 16 (%) 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.

SPDR Dow Jones

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR Dow showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and SPDR Dow

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

The idea behind Citigroup and SPDR Dow Jones 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .