Correlation Between Citigroup and Nasdaq

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

Diversification Opportunities for Citigroup and Nasdaq

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Citigroup and Nasdaq is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 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 Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq has no effect on the direction of Citigroup i.e., Citigroup and Nasdaq go up and down completely randomly.
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Pair Corralation between Citigroup and Nasdaq

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.03 times more return on investment than Nasdaq. However, Citigroup is 1.03 times more volatile than Nasdaq. It trades about -0.01 of its potential returns per unit of risk. Nasdaq is currently generating about -0.06 per unit of risk. If you would invest  4,909  in Citigroup on March 28, 2022 and sell it today you would lose (123.00)  from holding Citigroup or give up 2.51% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Citigroup  vs.  Nasdaq

 Performance (%) 
      Timeline 

Citigroup and Nasdaq Volatility Contrast

 Predicted Return Density 
      Returns 

Nasdaq

Pair trading matchups for Nasdaq

Twitter vs. Nasdaq
Microsoft Corp vs. Nasdaq
T Rowe vs. Nasdaq
T Rowe vs. Nasdaq
Visa vs. Nasdaq
Nextera Energy vs. Nasdaq
SP 500 vs. Nasdaq
Principal Financial vs. Nasdaq
Ipath SP vs. Nasdaq
Citigroup vs. Nasdaq
Meta Platforms vs. Nasdaq
Walker Dunlop vs. Nasdaq
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 Nasdaq 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. Nasdaq'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, Nasdaq'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 Nasdaq.

Pair Trading with Citigroup and Nasdaq

The main advantage of trading using opposite Citigroup and Nasdaq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, Nasdaq 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 Nasdaq will offset losses from the drop in Nasdaq's long position.
The idea behind Citigroup and Nasdaq 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.

Nasdaq

Pair trading matchups for Nasdaq

Principal Financial vs. Nasdaq
T Rowe vs. Nasdaq
Walker Dunlop vs. Nasdaq
GM vs. Nasdaq
Microsoft Corp vs. Nasdaq
T Rowe vs. Nasdaq
Nextera Energy vs. Nasdaq
IpathB SP vs. Nasdaq
Ipath SP vs. Nasdaq
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 Nasdaq 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. Nasdaq'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, Nasdaq'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 Nasdaq.
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 Piotroski F Score module to get Piotroski F Score based on binary analysis strategy of nine different fundamentals.

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