Correlation Between Citigroup and Amazon
Can any of the company-specific risk be diversified away by investing in both Citigroup and Amazon 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 Amazon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Citigroup and Amazon Inc, you can compare the effects of market volatilities on Citigroup and Amazon 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 Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and Amazon.
Diversification Opportunities for Citigroup and Amazon
Very poor diversification
The 3 months correlation between Citigroup and Amazon is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Citigroup i.e., Citigroup and Amazon go up and down completely randomly.
Pair Corralation between Citigroup and Amazon
Given the investment horizon of 90 days Citigroup is expected to generate 1.07 times more return on investment than Amazon. However, Citigroup is 1.07 times more volatile than Amazon Inc. It trades about 0.13 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.1 per unit of risk. If you would invest 91,972 in Citigroup on August 27, 2024 and sell it today you would earn a total of 50,029 from holding Citigroup or generate 54.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Citigroup vs. Amazon Inc
Performance |
| Timeline |
| Citigroup |
| Amazon Inc |
Citigroup and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Citigroup and Amazon
The main advantage of trading using opposite Citigroup and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.The idea behind Citigroup and Amazon Inc 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.| Amazon vs. Ameriprise Financial | Amazon vs. Prudential Financial | Amazon vs. Burlington Stores | Amazon vs. Grupo Sports World |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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