Correlation Between Citigroup and Tower Semiconductor

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

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

Diversification Opportunities for Citigroup and Tower Semiconductor

0.71

Correlation Coefficient

Citigroup  Tower Semiconductor

Poor diversification

The 3 months correlation between Citigroup and Tower is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor 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 Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of Citigroup i.e., Citigroup and Tower Semiconductor go up and down completely randomly.

Pair Corralation between Citigroup and Tower Semiconductor

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.0 times less return on investment than Tower Semiconductor. But when comparing it to its historical volatility, Citigroup is 1.31 times less risky than Tower Semiconductor. It trades about 0.11 of its potential returns per unit of risk. Tower Semiconductor is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,603,000  in Tower Semiconductor on August 30, 2024 and sell it today you would earn a total of  136,000  from holding Tower Semiconductor or generate 8.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	71.43%
Values	Daily Returns

Citigroup  vs.  Tower Semiconductor

Citigroup

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 8 (%) 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.

Tower Semiconductor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Semiconductor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tower Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Tower Semiconductor

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

The idea behind Citigroup and Tower Semiconductor 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.