Correlation Between Citigroup and Fauji Foods

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

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

Diversification Opportunities for Citigroup and Fauji Foods

0.78

Correlation Coefficient

Citigroup  Fauji Foods

Poor diversification

The 3 months correlation between Citigroup and Fauji is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods 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 Fauji Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fauji Foods has no effect on the direction of Citigroup i.e., Citigroup and Fauji Foods go up and down completely randomly.

Pair Corralation between Citigroup and Fauji Foods

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.41 times less return on investment than Fauji Foods. But when comparing it to its historical volatility, Citigroup is 1.43 times less risky than Fauji Foods. It trades about 0.13 of its potential returns per unit of risk. Fauji Foods is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  870.00  in Fauji Foods on September 2, 2024 and sell it today you would earn a total of  396.00  from holding Fauji Foods or generate 45.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Citigroup  vs.  Fauji Foods

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.

Fauji Foods

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Foods are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Fauji Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Fauji Foods

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

The idea behind Citigroup and Fauji Foods 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.