Correlation Between Citigroup and Erie Indemnity

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

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

Diversification Opportunities for Citigroup and Erie Indemnity

0.54

Correlation Coefficient

Citigroup  Erie Indemnity

Very weak diversification

The 3 months correlation between Citigroup and Erie is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Erie Indemnity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erie Indemnity 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 Erie Indemnity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erie Indemnity has no effect on the direction of Citigroup i.e., Citigroup and Erie Indemnity go up and down completely randomly.

Pair Corralation between Citigroup and Erie Indemnity

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.84 times more return on investment than Erie Indemnity. However, Citigroup is 1.84 times more volatile than Erie Indemnity. It trades about 0.0 of its potential returns per unit of risk. Erie Indemnity is currently generating about -0.17 per unit of risk. If you would invest  6,169  in Citigroup on February 3, 2024 and sell it today you would lose (18.00) from holding Citigroup or give up 0.29% of portfolio value over 90 days.

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

Citigroup  vs.  Erie Indemnity

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 exhibited solid returns over the last few months and may actually be approaching a breakup point.

Erie Indemnity

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erie Indemnity are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent forward indicators, Erie Indemnity exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Erie Indemnity

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

The idea behind Citigroup and Erie Indemnity 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.