Correlation Between Select Sector and Citigroup

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

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

Diversification Opportunities for Select Sector and Citigroup

0.68

Correlation Coefficient

Select Sector  Citigroup

Poor diversification

The 3 months correlation between Select and Citigroup is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and Select Sector 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 The Select Sector 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 Select Sector i.e., Select Sector and Citigroup go up and down completely randomly.

Pair Corralation between Select Sector and Citigroup

Assuming the 90 days trading horizon Select Sector is expected to generate 12.45 times less return on investment than Citigroup. But when comparing it to its historical volatility, The Select Sector is 1.09 times less risky than Citigroup. It trades about 0.02 of its potential returns per unit of risk. Citigroup is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  111,527  in Citigroup on September 14, 2024 and sell it today you would earn a total of  32,513  from holding Citigroup or generate 29.15% return on investment over 90 days.

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

The Select Sector  vs.  Citigroup

Select Sector

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Select Sector 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 Select Sector and Citigroup

The main advantage of trading using opposite Select Sector and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector 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 The Select Sector 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.