Correlation Between Microsoft CDR and CITIGROUP CDR

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

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

Diversification Opportunities for Microsoft CDR and CITIGROUP CDR

0.95

Correlation Coefficient

Microsoft CDR  CITIGROUP CDR

Almost no diversification

The 3 months correlation between Microsoft and CITIGROUP is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft CDR and CITIGROUP CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIGROUP CDR and Microsoft CDR 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 Microsoft CDR are associated (or correlated) with CITIGROUP CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIGROUP CDR has no effect on the direction of Microsoft CDR i.e., Microsoft CDR and CITIGROUP CDR go up and down completely randomly.

Pair Corralation between Microsoft CDR and CITIGROUP CDR

Assuming the 90 days trading horizon Microsoft CDR is expected to generate 1.55 times less return on investment than CITIGROUP CDR. But when comparing it to its historical volatility, Microsoft CDR is 1.41 times less risky than CITIGROUP CDR. It trades about 0.24 of its potential returns per unit of risk. CITIGROUP CDR is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  3,174  in CITIGROUP CDR on May 15, 2025 and sell it today you would earn a total of  834.00  from holding CITIGROUP CDR or generate 26.28% return on investment over 90 days.

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

Microsoft CDR  vs.  CITIGROUP CDR

Microsoft CDR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft CDR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Microsoft CDR displayed solid returns over the last few months and may actually be approaching a breakup point.

CITIGROUP CDR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CITIGROUP CDR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, CITIGROUP CDR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft CDR and CITIGROUP CDR

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

The idea behind Microsoft CDR and CITIGROUP CDR 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 AI Portfolio Prophet module to use AI to generate optimal portfolios and find profitable investment opportunities.