Correlation Between Citigroup and International Business

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

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

Diversification Opportunities for Citigroup and International Business

0.82

Correlation Coefficient

Citigroup  International Business

Very poor diversification

The 12 months correlation between Citigroup and International is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Citigroup i.e., Citigroup and International Business go up and down completely randomly.

Pair Corralation between Citigroup and International Business

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.33 times less return on investment than International Business. In addition to that, Citigroup is 1.42 times more volatile than International Business Machines. It trades about 0.03 of its total potential returns per unit of risk. International Business Machines is currently generating about 0.07 per unit of volatility. If you would invest  12,508  in International Business Machines on January 24, 2024 and sell it today you would earn a total of  5,682  from holding International Business Machines or generate 45.43% return on investment over 90 days.

Time Period	12 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Citigroup  vs.  International Business Machine

Citigroup

Risk-Adjusted Performance

7 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in May 2024.

International Business

Risk-Adjusted Performance

11 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, International Business may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Citigroup and International Business

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

The idea behind Citigroup and International Business Machines 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.