Correlation Between Citigroup and Peabody Energy

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

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

Diversification Opportunities for Citigroup and Peabody Energy

0.13

Correlation Coefficient

Citigroup  Peabody Energy

Average diversification

The 3 months correlation between Citigroup and Peabody is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Peabody Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peabody Energy 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 Peabody Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peabody Energy has no effect on the direction of Citigroup i.e., Citigroup and Peabody Energy go up and down completely randomly.

Pair Corralation between Citigroup and Peabody Energy

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.74 times more return on investment than Peabody Energy. However, Citigroup is 1.35 times less risky than Peabody Energy. It trades about 0.08 of its potential returns per unit of risk. Peabody Energy is currently generating about 0.01 per unit of risk. If you would invest  6,247  in Citigroup on September 19, 2024 and sell it today you would earn a total of  565.00  from holding Citigroup or generate 9.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Citigroup  vs.  Peabody Energy

Citigroup

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Peabody Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peabody Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Peabody Energy 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 Peabody Energy

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

The idea behind Citigroup and Peabody Energy 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.