Correlation Between Citigroup and Software Acquisition

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

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

Diversification Opportunities for Citigroup and Software Acquisition

0.06

Correlation Coefficient

Citigroup  Software Acquisition

Significant diversification

The 3 months correlation between Citigroup and Software is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Software Acquisition Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Software Acquisition 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 Software Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Software Acquisition has no effect on the direction of Citigroup i.e., Citigroup and Software Acquisition go up and down completely randomly.

Pair Corralation between Citigroup and Software Acquisition

Taking into account the 90-day investment horizon Citigroup is expected to generate 4.36 times less return on investment than Software Acquisition. But when comparing it to its historical volatility, Citigroup is 17.29 times less risky than Software Acquisition. It trades about 0.37 of its potential returns per unit of risk. Software Acquisition Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.42  in Software Acquisition Group on April 24, 2025 and sell it today you would lose (0.19) from holding Software Acquisition Group or give up 13.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	50.82%
Values	Daily Returns

Citigroup  vs.  Software Acquisition Group

Citigroup

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 29 (%) 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.

Software Acquisition

Risk-Adjusted Performance

OK

Over the last 90 days Software Acquisition Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak technical and fundamental indicators, Software Acquisition showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Software Acquisition

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

The idea behind Citigroup and Software Acquisition Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.