Correlation Between Citigroup and CAE
Can any of the company-specific risk be diversified away by investing in both Citigroup and CAE 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 CAE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Citigroup and CAE Inc, you can compare the effects of market volatilities on Citigroup and CAE 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 CAE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and CAE.
Diversification Opportunities for Citigroup and CAE
Poor diversification
The 3 months correlation between Citigroup and CAE is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and CAE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAE 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 CAE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAE Inc has no effect on the direction of Citigroup i.e., Citigroup and CAE go up and down completely randomly.
Pair Corralation between Citigroup and CAE
Taking into account the 90-day investment horizon Citigroup is expected to generate 2.07 times less return on investment than CAE. But when comparing it to its historical volatility, Citigroup is 1.5 times less risky than CAE. It trades about 0.25 of its potential returns per unit of risk. CAE Inc is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 1,872 in CAE Inc on August 28, 2024 and sell it today you would earn a total of 458.00 from holding CAE Inc or generate 24.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Citigroup vs. CAE Inc
Performance |
| Timeline |
| Citigroup |
| CAE Inc |
Citigroup and CAE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Citigroup and CAE
The main advantage of trading using opposite Citigroup and CAE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, CAE 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 CAE will offset losses from the drop in CAE's long position.The idea behind Citigroup and CAE 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.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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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