Correlation Between Citigroup and MicroSectors FANG

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

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

Diversification Opportunities for Citigroup and MicroSectors FANG

0.9

Correlation Coefficient

Citigroup  MicroSectors FANG

Almost no diversification

The 3 months correlation between Citigroup and MicroSectors is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and MicroSectors FANG Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG Index 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 MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG Index has no effect on the direction of Citigroup i.e., Citigroup and MicroSectors FANG go up and down completely randomly.

Pair Corralation between Citigroup and MicroSectors FANG

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.81 times less return on investment than MicroSectors FANG. But when comparing it to its historical volatility, Citigroup is 1.47 times less risky than MicroSectors FANG. It trades about 0.14 of its potential returns per unit of risk. MicroSectors FANG Index is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  7,197  in MicroSectors FANG Index on September 20, 2024 and sell it today you would earn a total of  2,103  from holding MicroSectors FANG Index or generate 29.22% return on investment over 90 days.

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

Citigroup  vs.  MicroSectors FANG Index

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.

MicroSectors FANG Index

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, MicroSectors FANG displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and MicroSectors FANG

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

The idea behind Citigroup and MicroSectors FANG Index 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.