Correlation Between B of A and Citigroup

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

Diversification Opportunities for B of A and Citigroup

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between B of A and Citigroup is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Bank Of America and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and B of A 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 Bank Of America 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 B of A i.e., B of A and Citigroup go up and down completely randomly.

Pair Corralation between B of A and Citigroup

Considering the 90-day investment horizon Bank Of America is expected to generate 0.97 times more return on investment than Citigroup. However, Bank Of America is 1.03 times less risky than Citigroup. It trades about 0.05 of its potential returns per unit of risk. Citigroup is currently generating about 0.03 per unit of risk. If you would invest  2,393  in Bank Of America on May 13, 2022 and sell it today you would earn a total of  1,198  from holding Bank Of America or generate 50.06% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Bank Of America  vs.  Citigroup

 Performance (%) 
       Timeline  
Bank Of America 
B of A Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Of America are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, B of A is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

B of A Price Channel

Citigroup 
Citigroup Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Citigroup sustained solid returns over the last few months and may actually be approaching a breakup point.

Citigroup Price Channel

B of A and Citigroup Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with B of A and Citigroup

The main advantage of trading using opposite B of A and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if B of A 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.
The idea behind Bank Of America 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.
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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