Correlation Between XIAO I and CF Industries

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

By analyzing existing cross correlation between XIAO I American and CF Industries Holdings, you can compare the effects of market volatilities on XIAO I and CF Industries 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 XIAO I with a short position of CF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of XIAO I and CF Industries.

Diversification Opportunities for XIAO I and CF Industries

0.72

Correlation Coefficient

XIAO I  CF Industries

Poor diversification

The 3 months correlation between XIAO and CF Industries is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding XIAO I American and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings and XIAO I 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 XIAO I American are associated (or correlated) with CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of XIAO I i.e., XIAO I and CF Industries go up and down completely randomly.

Pair Corralation between XIAO I and CF Industries

Given the investment horizon of 90 days XIAO I American is expected to generate 5.85 times more return on investment than CF Industries. However, XIAO I is 5.85 times more volatile than CF Industries Holdings. It trades about 0.1 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.14 per unit of risk. If you would invest  404.00  in XIAO I American on September 13, 2024 and sell it today you would earn a total of  162.00  from holding XIAO I American or generate 40.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

XIAO I American  vs.  CF Industries Holdings

XIAO I American

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in XIAO I American are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, XIAO I demonstrated solid returns over the last few months and may actually be approaching a breakup point.

CF Industries Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, CF Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with XIAO I and CF Industries

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

The idea behind XIAO I American and CF Industries Holdings 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.