Correlation Between Verizon Communications and Citigroup

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

By analyzing existing cross correlation between Verizon Communications and Citigroup, you can compare the effects of market volatilities on Verizon Communications and Citigroup 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 Verizon Communications with a short position of Citigroup. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Citigroup.

Diversification Opportunities for Verizon Communications and Citigroup

0.35

Correlation Coefficient

Verizon Communications  Citigroup

Weak diversification

The 3 months correlation between Verizon and Citigroup is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and Verizon Communications 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 Verizon Communications are associated (or correlated) with Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of Verizon Communications i.e., Verizon Communications and Citigroup go up and down completely randomly.

Pair Corralation between Verizon Communications and Citigroup

Assuming the 90 days horizon Verizon Communications is expected to generate 1.41 times less return on investment than Citigroup. But when comparing it to its historical volatility, Verizon Communications is 1.01 times less risky than Citigroup. It trades about 0.08 of its potential returns per unit of risk. Citigroup is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  110,633  in Citigroup on September 14, 2024 and sell it today you would earn a total of  32,600  from holding Citigroup or generate 29.47% return on investment over 90 days.

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

Verizon Communications  vs.  Citigroup

Verizon Communications

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Verizon Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Citigroup

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Citigroup showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Citigroup

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

The idea behind Verizon Communications and Citigroup 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.