Correlation Between Citigroup and Daikin IndustriesLtd

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

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

Diversification Opportunities for Citigroup and Daikin IndustriesLtd

0.22

Correlation Coefficient

Citigroup  Daikin IndustriesLtd

Modest diversification

The 3 months correlation between Citigroup and Daikin is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Daikin IndustriesLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daikin IndustriesLtd 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 Daikin IndustriesLtd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daikin IndustriesLtd has no effect on the direction of Citigroup i.e., Citigroup and Daikin IndustriesLtd go up and down completely randomly.

Pair Corralation between Citigroup and Daikin IndustriesLtd

Taking into account the 90-day investment horizon Citigroup is expected to generate 5.48 times less return on investment than Daikin IndustriesLtd. But when comparing it to its historical volatility, Citigroup is 4.83 times less risky than Daikin IndustriesLtd. It trades about 0.1 of its potential returns per unit of risk. Daikin IndustriesLtd is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,738  in Daikin IndustriesLtd on September 23, 2024 and sell it today you would earn a total of  4,187  from holding Daikin IndustriesLtd or generate 62.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Citigroup  vs.  Daikin IndustriesLtd

Citigroup

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Daikin IndustriesLtd

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daikin IndustriesLtd are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Daikin IndustriesLtd reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Daikin IndustriesLtd

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

The idea behind Citigroup and Daikin IndustriesLtd 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.