Correlation Between Citigroup and Simpson Manufacturing

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

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

Diversification Opportunities for Citigroup and Simpson Manufacturing

0.61

Correlation Coefficient

Citigroup  Simpson Manufacturing

Poor diversification

The 3 months correlation between Citigroup and Simpson is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Simpson Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simpson Manufacturing 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 Simpson Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simpson Manufacturing has no effect on the direction of Citigroup i.e., Citigroup and Simpson Manufacturing go up and down completely randomly.

Pair Corralation between Citigroup and Simpson Manufacturing

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.71 times more return on investment than Simpson Manufacturing. However, Citigroup is 1.42 times less risky than Simpson Manufacturing. It trades about 0.38 of its potential returns per unit of risk. Simpson Manufacturing is currently generating about 0.15 per unit of risk. If you would invest  6,760  in Citigroup on May 1, 2025 and sell it today you would earn a total of  2,821  from holding Citigroup or generate 41.73% return on investment over 90 days.

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

Citigroup  vs.  Simpson Manufacturing

Citigroup

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Simpson Manufacturing

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Simpson Manufacturing are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Simpson Manufacturing exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Simpson Manufacturing

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

The idea behind Citigroup and Simpson Manufacturing 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.