Correlation Between East West and Citigroup

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

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

Diversification Opportunities for East West and Citigroup

0.73

Correlation Coefficient

East West  Citigroup

Poor diversification

The 3 months correlation between East and Citigroup is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and East West 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 East West Bancorp 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 East West i.e., East West and Citigroup go up and down completely randomly.

Pair Corralation between East West and Citigroup

Given the investment horizon of 90 days East West Bancorp is expected to under-perform the Citigroup. In addition to that, East West is 1.12 times more volatile than Citigroup. It trades about -0.16 of its total potential returns per unit of risk. Citigroup is currently generating about -0.1 per unit of volatility. If you would invest  6,013  in Citigroup on January 20, 2024 and sell it today you would lose (181.00) from holding Citigroup or give up 3.01% of portfolio value over 90 days.

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

East West Bancorp  vs.  Citigroup

East West Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East West Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, East West is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Citigroup

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) 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.

Pair Trading with East West and Citigroup

The main advantage of trading using opposite East West and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West 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 East West Bancorp 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.