Correlation Between Citigroup and China Construction

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Can any of the company-specific risk be diversified away by investing in both Citigroup and China Construction 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 China Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Citigroup and China Construction Bank, you can compare the effects of market volatilities on Citigroup and China Construction 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 China Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and China Construction.

Diversification Opportunities for Citigroup and China Construction

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Citigroup and China is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and China Construction Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Construction Bank 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 China Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Construction Bank has no effect on the direction of Citigroup i.e., Citigroup and China Construction go up and down completely randomly.

Pair Corralation between Citigroup and China Construction

Taking into account the 90-day investment horizon Citigroup is expected to under-perform the China Construction. In addition to that, Citigroup is 1.45 times more volatile than China Construction Bank. It trades about -0.01 of its total potential returns per unit of risk. China Construction Bank is currently generating about 0.0 per unit of volatility. If you would invest  1,283  in China Construction Bank on September 7, 2022 and sell it today you would lose (91.00)  from holding China Construction Bank or give up 7.09% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.8%
ValuesDaily Returns

Citigroup  vs.  China Construction Bank

 Performance (%) 
       Timeline  
Citigroup 
Citigroup Performance
0 of 100
Over the last 90 days Citigroup has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Citigroup is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

Citigroup Price Channel

China Construction Bank 
China Performance
0 of 100
Over the last 90 days China Construction Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, China Construction is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

China Price Channel

Citigroup and China Construction Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Citigroup and China Construction

The main advantage of trading using opposite Citigroup and China Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, China Construction 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 China Construction will offset losses from the drop in China Construction's long position.
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The idea behind Citigroup and China Construction Bank 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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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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