Correlation Between Bank of America and Citigroup

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

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

Diversification Opportunities for Bank of America and Citigroup

0.8

Correlation Coefficient

Bank of America  Citigroup

Very poor diversification

The 3 months correlation between Bank and Citigroup is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Citigroup go up and down completely randomly.

Pair Corralation between Bank of America and Citigroup

Assuming the 90 days trading horizon Bank of America is expected to generate 0.29 times more return on investment than Citigroup. However, Bank of America is 3.45 times less risky than Citigroup. It trades about -0.1 of its potential returns per unit of risk. Citigroup is currently generating about -0.07 per unit of risk. If you would invest  2,209  in Bank of America on January 12, 2025 and sell it today you would lose (118.00) from holding Bank of America or give up 5.34% of portfolio value over 90 days.

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

Bank of America  vs.  Citigroup

Bank of America

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Bank of America is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Citigroup

Risk-Adjusted Performance

Very Weak

Over the last 90 days Citigroup has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in May 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Bank of America and Citigroup

The main advantage of trading using opposite Bank of America and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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 Bank of America 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.