Correlation Between Citigroup and Petróleo Brasileiro

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

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

Diversification Opportunities for Citigroup and Petróleo Brasileiro

-0.44

Correlation Coefficient

Citigroup  Petróleo Brasileiro

Very good diversification

The 3 months correlation between Citigroup and Petróleo is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petróleo Brasileiro 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 Petróleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petróleo Brasileiro has no effect on the direction of Citigroup i.e., Citigroup and Petróleo Brasileiro go up and down completely randomly.

Pair Corralation between Citigroup and Petróleo Brasileiro

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.55 times more return on investment than Petróleo Brasileiro. However, Citigroup is 1.55 times more volatile than Petrleo Brasileiro SA. It trades about 0.13 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about 0.01 per unit of risk. If you would invest  6,159  in Citigroup on August 21, 2024 and sell it today you would earn a total of  701.00  from holding Citigroup or generate 11.38% return on investment over 90 days.

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

Citigroup  vs.  Petrleo Brasileiro SA

Citigroup

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Petróleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrleo Brasileiro SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Petróleo Brasileiro is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and Petróleo Brasileiro

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

The idea behind Citigroup and Petrleo Brasileiro SA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.