Correlation Between Microsoft Corp and Citigroup

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

Diversification Opportunities for Microsoft Corp and Citigroup

0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between Microsoft and Citigroup is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup and Microsoft Corp 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 Microsoft Corp 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 Microsoft Corp i.e., Microsoft Corp and Citigroup go up and down completely randomly.

Pair Corralation between Microsoft Corp and Citigroup

Given the investment horizon of 90 days Microsoft Corp is expected to generate 1.83 times less return on investment than Citigroup. But when comparing it to its historical volatility, Microsoft Corp is 1.46 times less risky than Citigroup. It trades about 0.16 of its potential returns per unit of risk. Citigroup is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  4,574  in Citigroup on May 10, 2022 and sell it today you would earn a total of  625.00  from holding Citigroup or generate 13.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  Citigroup

 Performance (%) 
       Timeline  
Microsoft Corp 
Microsoft Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Microsoft Price Channel

Citigroup 
Citigroup Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Citigroup Price Channel

Microsoft Corp and Citigroup Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and Citigroup

The main advantage of trading using opposite Microsoft Corp and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp 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 Microsoft Corp 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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