Correlation Between Citigroup and Memphis Pharmaceuticals

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

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

Diversification Opportunities for Citigroup and Memphis Pharmaceuticals

0.68

Correlation Coefficient

Citigroup  Memphis Pharmaceuticals

Poor diversification

The 3 months correlation between Citigroup and Memphis is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Memphis Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Memphis Pharmaceuticals 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 Memphis Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Memphis Pharmaceuticals has no effect on the direction of Citigroup i.e., Citigroup and Memphis Pharmaceuticals go up and down completely randomly.

Pair Corralation between Citigroup and Memphis Pharmaceuticals

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.33 times more return on investment than Memphis Pharmaceuticals. However, Citigroup is 3.03 times less risky than Memphis Pharmaceuticals. It trades about 0.02 of its potential returns per unit of risk. Memphis Pharmaceuticals is currently generating about -0.12 per unit of risk. If you would invest  7,075  in Citigroup on September 25, 2024 and sell it today you would earn a total of  25.00  from holding Citigroup or generate 0.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.71%
Values	Daily Returns

Citigroup  vs.  Memphis Pharmaceuticals

Citigroup

Risk-Adjusted Performance

12 of 100

OK

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

Memphis Pharmaceuticals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Memphis Pharmaceuticals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Memphis Pharmaceuticals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Memphis Pharmaceuticals

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

The idea behind Citigroup and Memphis Pharmaceuticals 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.