Correlation Between Citigroup and IPC

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

Diversification Opportunities for Citigroup and IPC

0.35
  Correlation Coefficient

Weak diversification

The 3 months correlation between Citigroup and IPC is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and IPC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPC 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 IPC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IPC has no effect on the direction of Citigroup i.e., Citigroup and IPC go up and down completely randomly.
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Pair Corralation between Citigroup and IPC

Taking into account the 90-day investment horizon Citigroup is expected to under-perform the IPC. In addition to that, Citigroup is 1.25 times more volatile than IPC. It trades about -0.44 of its total potential returns per unit of risk. IPC is currently generating about -0.08 per unit of volatility. If you would invest  4,632,210  in IPC on June 30, 2022 and sell it today you would lose (90,483)  from holding IPC or give up 1.95% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy90.91%
ValuesDaily Returns

Citigroup  vs.  IPC

 Performance (%) 
       Timeline  

Citigroup and IPC Volatility Contrast

   Predicted Return Density   
       Returns  

Citigroup

Pair trading matchups for Citigroup

IPC

Pair trading matchups for IPC

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 IPC 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. IPC'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, IPC'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 IPC.

Pair Trading with Citigroup and IPC

The main advantage of trading using opposite Citigroup and IPC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, IPC 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 IPC will offset losses from the drop in IPC's long position.
Citigroup vs. Kibush Capital Corp
The idea behind Citigroup and IPC 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.
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 IPC 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. IPC'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, IPC'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 IPC.
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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