Correlation Between Citigroup and B of A

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

Diversification Opportunities for Citigroup and B of A

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Citigroup and B of A is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Bank Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Of America 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 B of A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Of America has no effect on the direction of Citigroup i.e., Citigroup and B of A go up and down completely randomly.

Pair Corralation between Citigroup and B of A

Taking into account the 90-day investment horizon Citigroup is expected to under-perform the B of A. But the stock apears to be less risky and, when comparing its historical volatility, Citigroup is 1.09 times less risky than B of A. The stock trades about -0.45 of its potential returns per unit of risk. The Bank Of America is currently generating about -0.25 of returns per unit of risk over similar time horizon. If you would invest  3,514  in Bank Of America on June 26, 2022 and sell it today you would lose (341.00)  from holding Bank Of America or give up 9.7% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Citigroup  vs.  Bank Of America

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

Citigroup Price Channel

Bank Of America 
B of A Performance
0 of 100
Over the last 90 days Bank Of America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, B of A is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

B of A Price Channel

Citigroup and B of A Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Citigroup and B of A

The main advantage of trading using opposite Citigroup and B of A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, B of A 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 B of A will offset losses from the drop in B of A's long position.
Citigroup vs. China Construction B
The idea behind Citigroup and Bank Of America 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.
B of A vs. China Construction B
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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