Correlation Between Capital One and Citigroup

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Can any of the company-specific risk be diversified away by investing in both Capital One 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 Capital One and Citigroup into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital One Financial and Citigroup, you can compare the effects of market volatilities on Capital One 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 Capital One with a short position of Citigroup. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and Citigroup.

Diversification Opportunities for Capital One and Citigroup

0.46
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Capital and Citigroup is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Citigroup go up and down completely randomly.

Pair Corralation between Capital One and Citigroup

Considering the 90-day investment horizon Capital One is expected to generate 1.3 times less return on investment than Citigroup. In addition to that, Capital One is 1.26 times more volatile than Citigroup. It trades about 0.03 of its total potential returns per unit of risk. Citigroup is currently generating about 0.04 per unit of volatility. If you would invest  4,668  in Citigroup on December 29, 2023 and sell it today you would earn a total of  1,656  from holding Citigroup or generate 35.48% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Capital One Financial  vs.  Citigroup

 Performance 
       Timeline  
Capital One Financial 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Capital One reported solid returns over the last few months and may actually be approaching a breakup point.
Citigroup 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Capital One and Citigroup Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Capital One and Citigroup

The main advantage of trading using opposite Capital One and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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 Capital One Financial 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.
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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