Correlation Between Citigroup and Franklin Liberty

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

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

Diversification Opportunities for Citigroup and Franklin Liberty

0.86

Correlation Coefficient

Citigroup  Franklin Liberty

Very poor diversification

The 3 months correlation between Citigroup and Franklin is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Franklin Liberty Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Ultra 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 Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty Ultra has no effect on the direction of Citigroup i.e., Citigroup and Franklin Liberty go up and down completely randomly.

Pair Corralation between Citigroup and Franklin Liberty

Taking into account the 90-day investment horizon Citigroup is expected to generate 13.56 times more return on investment than Franklin Liberty. However, Citigroup is 13.56 times more volatile than Franklin Liberty Ultra. It trades about 0.14 of its potential returns per unit of risk. Franklin Liberty Ultra is currently generating about 0.09 per unit of risk. If you would invest  6,042  in Citigroup on September 4, 2024 and sell it today you would earn a total of  1,097  from holding Citigroup or generate 18.16% return on investment over 90 days.

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

Citigroup  vs.  Franklin Liberty Ultra

Citigroup

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 11 (%) 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.

Franklin Liberty Ultra

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Ultra are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Franklin Liberty is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Citigroup and Franklin Liberty

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

The idea behind Citigroup and Franklin Liberty Ultra 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.