Correlation Between Citigroup and Lancashire Holdings

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

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

Diversification Opportunities for Citigroup and Lancashire Holdings

0.55

Correlation Coefficient

Citigroup  Lancashire Holdings

Very weak diversification

The 3 months correlation between Citigroup and Lancashire is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Lancashire Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancashire Holdings 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 Lancashire Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancashire Holdings has no effect on the direction of Citigroup i.e., Citigroup and Lancashire Holdings go up and down completely randomly.

Pair Corralation between Citigroup and Lancashire Holdings

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.8 times more return on investment than Lancashire Holdings. However, Citigroup is 1.25 times less risky than Lancashire Holdings. It trades about 0.11 of its potential returns per unit of risk. Lancashire Holdings Limited is currently generating about 0.04 per unit of risk. If you would invest  4,325  in Citigroup on September 23, 2024 and sell it today you would earn a total of  2,594  from holding Citigroup or generate 59.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.54%
Values	Daily Returns

Citigroup  vs.  Lancashire Holdings Limited

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.

Lancashire Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lancashire Holdings Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Lancashire Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Citigroup and Lancashire Holdings

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

The idea behind Citigroup and Lancashire Holdings Limited 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.