Correlation Between Citigroup and SDX Energy

Can any of the company-specific risk be diversified away by investing in both Citigroup and SDX Energy 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 SDX Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Citigroup and SDX Energy plc, you can compare the effects of market volatilities on Citigroup and SDX Energy 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 SDX Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and SDX Energy.

Diversification Opportunities for Citigroup and SDX Energy

-0.26

Correlation Coefficient

Citigroup  SDX Energy

Very good diversification

The 3 months correlation between Citigroup and SDX is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and SDX Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SDX Energy plc 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 SDX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SDX Energy plc has no effect on the direction of Citigroup i.e., Citigroup and SDX Energy go up and down completely randomly.

Pair Corralation between Citigroup and SDX Energy

Taking into account the 90-day investment horizon Citigroup is expected to generate 24.53 times less return on investment than SDX Energy. But when comparing it to its historical volatility, Citigroup is 49.3 times less risky than SDX Energy. It trades about 0.25 of its potential returns per unit of risk. SDX Energy plc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.71  in SDX Energy plc on September 13, 2024 and sell it today you would lose (0.25) from holding SDX Energy plc or give up 35.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Citigroup  vs.  SDX Energy plc

Citigroup

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

SDX Energy plc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SDX Energy plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, SDX Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and SDX Energy

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

The idea behind Citigroup and SDX Energy plc 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 the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.