Correlation Between Citigroup and Satcom Systems

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

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

Diversification Opportunities for Citigroup and Satcom Systems

0.8

Correlation Coefficient

Citigroup  Satcom Systems

Very poor diversification

The 3 months correlation between Citigroup and Satcom is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Satcom Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Satcom Systems 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 Satcom Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Satcom Systems has no effect on the direction of Citigroup i.e., Citigroup and Satcom Systems go up and down completely randomly.

Pair Corralation between Citigroup and Satcom Systems

Taking into account the 90-day investment horizon Citigroup is expected to generate 7.43 times less return on investment than Satcom Systems. But when comparing it to its historical volatility, Citigroup is 2.68 times less risky than Satcom Systems. It trades about 0.08 of its potential returns per unit of risk. Satcom Systems is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  6,680  in Satcom Systems on September 27, 2024 and sell it today you would earn a total of  850.00  from holding Satcom Systems or generate 12.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	90.48%
Values	Daily Returns

Citigroup  vs.  Satcom Systems

Citigroup

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) 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.

Satcom Systems

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Satcom Systems are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Satcom Systems sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Satcom Systems

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

The idea behind Citigroup and Satcom Systems 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.