Correlation Between Citigroup and DAX Midcap

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

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

Diversification Opportunities for Citigroup and DAX Midcap

0.27

Correlation Coefficient

Citigroup  DAX Midcap

Modest diversification

The 3 months correlation between Citigroup and DAX is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and DAX Midcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DAX Midcap 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 DAX Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DAX Midcap has no effect on the direction of Citigroup i.e., Citigroup and DAX Midcap go up and down completely randomly.

Pair Corralation between Citigroup and DAX Midcap

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.24 times more return on investment than DAX Midcap. However, Citigroup is 2.24 times more volatile than DAX Midcap. It trades about 0.17 of its potential returns per unit of risk. DAX Midcap is currently generating about 0.14 per unit of risk. If you would invest  5,902  in Citigroup on September 8, 2024 and sell it today you would earn a total of  1,313  from holding Citigroup or generate 22.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Citigroup  vs.  DAX Midcap

Pair Trading with Citigroup and DAX Midcap

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

The idea behind Citigroup and DAX Midcap 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.