Correlation Between Citigroup and Epsilon Energy

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

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

Diversification Opportunities for Citigroup and Epsilon Energy

-0.35

Correlation Coefficient

Citigroup  Epsilon Energy

Very good diversification

The 3 months correlation between Citigroup and Epsilon is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy 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 Epsilon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Epsilon Energy has no effect on the direction of Citigroup i.e., Citigroup and Epsilon Energy go up and down completely randomly.

Pair Corralation between Citigroup and Epsilon Energy

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.57 times more return on investment than Epsilon Energy. However, Citigroup is 1.76 times less risky than Epsilon Energy. It trades about 0.44 of its potential returns per unit of risk. Epsilon Energy is currently generating about 0.16 per unit of risk. If you would invest  6,115  in Citigroup on February 10, 2025 and sell it today you would earn a total of  1,030  from holding Citigroup or generate 16.84% return on investment over 90 days.

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

Citigroup  vs.  Epsilon Energy

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 latest unfluctuating performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Epsilon Energy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Epsilon Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Epsilon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Epsilon Energy

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

The idea behind Citigroup and Epsilon Energy 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.