Correlation Between Citigroup and Target

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

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

Diversification Opportunities for Citigroup and Target

0.91

Correlation Coefficient

Citigroup  Target

Almost no diversification

The 3 months correlation between Citigroup and Target is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Citigroup i.e., Citigroup and Target go up and down completely randomly.

Pair Corralation between Citigroup and Target

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.75 times more return on investment than Target. However, Citigroup is 1.33 times less risky than Target. It trades about 0.04 of its potential returns per unit of risk. Target is currently generating about -0.01 per unit of risk. If you would invest  4,515  in Citigroup on January 21, 2024 and sell it today you would earn a total of  1,399  from holding Citigroup or generate 30.99% 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.  Target

Citigroup

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Target

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Target unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Target

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

The idea behind Citigroup and Target 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.