Correlation Between Citigroup and Beacon

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

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

Diversification Opportunities for Citigroup and Beacon

-0.21

Correlation Coefficient

Citigroup  Beacon

Very good diversification

The 3 months correlation between Citigroup and Beacon is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Beacon Roofing Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beacon Roofing Supply 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 Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beacon Roofing Supply has no effect on the direction of Citigroup i.e., Citigroup and Beacon go up and down completely randomly.

Pair Corralation between Citigroup and Beacon

Taking into account the 90-day investment horizon Citigroup is expected to generate 4.11 times more return on investment than Beacon. However, Citigroup is 4.11 times more volatile than Beacon Roofing Supply. It trades about 0.15 of its potential returns per unit of risk. Beacon Roofing Supply is currently generating about -0.07 per unit of risk. If you would invest  6,010  in Citigroup on September 5, 2024 and sell it today you would earn a total of  1,132  from holding Citigroup or generate 18.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.19%
Values	Daily Returns

Citigroup  vs.  Beacon Roofing Supply

Citigroup

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 11 (%) 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.

Beacon Roofing Supply

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beacon Roofing Supply has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Beacon is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and Beacon

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

The idea behind Citigroup and Beacon Roofing Supply 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.