Correlation Between Citigroup and Rakuten

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

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

Diversification Opportunities for Citigroup and Rakuten

0.49

Correlation Coefficient

Citigroup  Rakuten

Very weak diversification

The 3 months correlation between Citigroup and Rakuten is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Rakuten Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rakuten Inc ADR 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 Rakuten. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rakuten Inc ADR has no effect on the direction of Citigroup i.e., Citigroup and Rakuten go up and down completely randomly.

Pair Corralation between Citigroup and Rakuten

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.58 times more return on investment than Rakuten. However, Citigroup is 1.73 times less risky than Rakuten. It trades about 0.09 of its potential returns per unit of risk. Rakuten Inc ADR is currently generating about 0.02 per unit of risk. If you would invest  4,513  in Citigroup on February 5, 2024 and sell it today you would earn a total of  1,639  from holding Citigroup or generate 36.32% return on investment over 90 days.

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

Citigroup  vs.  Rakuten Inc ADR

Citigroup

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 12 (%) 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 June 2024.

Rakuten Inc ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rakuten Inc ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Rakuten showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Rakuten

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

The idea behind Citigroup and Rakuten Inc ADR 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.