Correlation Between Wells Fargo and Citigroup

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

Diversification Opportunities for Wells Fargo and Citigroup

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between Wells and Citigroup is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and Wells Fargo 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 Wells Fargo are associated (or correlated) with Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of Wells Fargo i.e., Wells Fargo and Citigroup go up and down completely randomly.

Pair Corralation between Wells Fargo and Citigroup

Considering the 90-day investment horizon Wells Fargo is expected to under-perform the Citigroup. But the stock apears to be less risky and, when comparing its historical volatility, Wells Fargo is 1.41 times less risky than Citigroup. The stock trades about -0.07 of its potential returns per unit of risk. The Citigroup is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,573  in Citigroup on September 6, 2022 and sell it today you would earn a total of  151.00  from holding Citigroup or generate 3.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Wells Fargo  vs.  Citigroup

 Performance (%) 
       Timeline  
Wells Fargo 
Wells Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Wells Price Channel

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 current stock price disturbance, may contribute to short-term losses for the investors.

Citigroup Price Channel

Wells Fargo and Citigroup Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wells Fargo and Citigroup

The main advantage of trading using opposite Wells Fargo and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Citigroup 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 will offset losses from the drop in Citigroup's long position.
Wells Fargo vs. East West Bancorp
The idea behind Wells Fargo and Citigroup 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.
Citigroup vs. East West Bancorp
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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

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