Correlation Between Citigroup and IShares Corp
Can any of the company-specific risk be diversified away by investing in both Citigroup and IShares Corp 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 IShares Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Citigroup and iShares Corp Bond, you can compare the effects of market volatilities on Citigroup and IShares Corp 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 IShares Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and IShares Corp.
Diversification Opportunities for Citigroup and IShares Corp
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Citigroup and IShares is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and iShares Corp Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Corp Bond 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 IShares Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Corp Bond has no effect on the direction of Citigroup i.e., Citigroup and IShares Corp go up and down completely randomly.
Pair Corralation between Citigroup and IShares Corp
Taking into account the 90-day investment horizon Citigroup is expected to generate 0.91 times more return on investment than IShares Corp. However, Citigroup is 1.09 times less risky than IShares Corp. It trades about 0.07 of its potential returns per unit of risk. iShares Corp Bond is currently generating about 0.02 per unit of risk. If you would invest 4,769 in Citigroup on October 21, 2024 and sell it today you would earn a total of 3,230 from holding Citigroup or generate 67.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 85.48% |
| Values | Daily Returns |
Citigroup vs. iShares Corp Bond
Performance |
| Timeline |
| Citigroup |
| iShares Corp Bond |
Citigroup and IShares Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Citigroup and IShares Corp
The main advantage of trading using opposite Citigroup and IShares Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, IShares Corp 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 IShares Corp will offset losses from the drop in IShares Corp's long position.| Citigroup vs. Bank of Montreal | Citigroup vs. Canadian Imperial Bank | Citigroup vs. Bank of Nova | Citigroup vs. JPMorgan Chase Co |
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against IShares Corp as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. IShares Corp's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, IShares Corp's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to iShares Corp Bond.
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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