Correlation Between Citigroup and Franklin Large

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

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

Diversification Opportunities for Citigroup and Franklin Large

0.94

Correlation Coefficient

Citigroup  Franklin Large

Almost no diversification

The 3 months correlation between Citigroup and Franklin is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Franklin Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Large Cap 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 Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Large Cap has no effect on the direction of Citigroup i.e., Citigroup and Franklin Large go up and down completely randomly.

Pair Corralation between Citigroup and Franklin Large

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.87 times more return on investment than Franklin Large. However, Citigroup is 2.87 times more volatile than Franklin Large Cap. It trades about 0.21 of its potential returns per unit of risk. Franklin Large Cap is currently generating about 0.28 per unit of risk. If you would invest  5,683  in Citigroup on September 12, 2024 and sell it today you would earn a total of  1,567  from holding Citigroup or generate 27.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Citigroup  vs.  Franklin Large Cap

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.

Franklin Large Cap

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Large Cap are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Franklin Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Citigroup and Franklin Large

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

The idea behind Citigroup and Franklin Large Cap 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.