Correlation Between Citigroup and American Express

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

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

Diversification Opportunities for Citigroup and American Express

0.97

Correlation Coefficient

Citigroup  American Express

Almost no diversification

The 3 months correlation between Citigroup and American is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Citigroup i.e., Citigroup and American Express go up and down completely randomly.

Pair Corralation between Citigroup and American Express

Assuming the 90 days trading horizon Citigroup is expected to generate 1.06 times more return on investment than American Express. However, Citigroup is 1.06 times more volatile than American Express. It trades about 0.25 of its potential returns per unit of risk. American Express is currently generating about 0.24 per unit of risk. If you would invest  5,643  in Citigroup on September 28, 2024 and sell it today you would earn a total of  1,722  from holding Citigroup or generate 30.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Citigroup  vs.  American Express

Citigroup

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Citigroup sustained solid returns over the last few months and may actually be approaching a breakup point.

American Express

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, American Express sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and American Express

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

The idea behind Citigroup and American Express 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.