Correlation Between Citigroup and Health Care

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

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

Diversification Opportunities for Citigroup and Health Care

-0.16

Correlation Coefficient

Citigroup  Health Care

Good diversification

The 3 months correlation between Citigroup and Health is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select 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 Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Select has no effect on the direction of Citigroup i.e., Citigroup and Health Care go up and down completely randomly.

Pair Corralation between Citigroup and Health Care

Taking into account the 90-day investment horizon Citigroup is expected to generate 2.04 times more return on investment than Health Care. However, Citigroup is 2.04 times more volatile than Health Care Select. It trades about 0.05 of its potential returns per unit of risk. Health Care Select is currently generating about 0.03 per unit of risk. If you would invest  4,399  in Citigroup on February 4, 2024 and sell it today you would earn a total of  1,753  from holding Citigroup or generate 39.85% return on investment over 90 days.

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

Citigroup  vs.  Health Care Select

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.

Health Care Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Health Care is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Citigroup and Health Care

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

The idea behind Citigroup and Health Care Select 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.