Correlation Between Citigroup and Mastercard Incorporated

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

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

Diversification Opportunities for Citigroup and Mastercard Incorporated

0.87

Correlation Coefficient

Citigroup  Mastercard Incorporated

Very poor diversification

The 3 months correlation between Citigroup and Mastercard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated 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 Mastercard Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard Incorporated has no effect on the direction of Citigroup i.e., Citigroup and Mastercard Incorporated go up and down completely randomly.

Pair Corralation between Citigroup and Mastercard Incorporated

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.39 times more return on investment than Mastercard Incorporated. However, Citigroup is 1.39 times more volatile than Mastercard Incorporated. It trades about 0.17 of its potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.19 per unit of risk. If you would invest  6,205  in Citigroup on September 5, 2024 and sell it today you would earn a total of  945.00  from holding Citigroup or generate 15.23% return on investment over 90 days.

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

Citigroup  vs.  Mastercard Incorporated

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.

Mastercard Incorporated

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Mastercard Incorporated showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Mastercard Incorporated

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

The idea behind Citigroup and Mastercard Incorporated 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.