Correlation Between Alaska Air and CF Industries

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

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

Diversification Opportunities for Alaska Air and CF Industries

0.14

Correlation Coefficient

Alaska Air  CF Industries

Average diversification

The 3 months correlation between Alaska and CF Industries is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group 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 Alaska Air 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 Alaska Air Group 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 Alaska Air i.e., Alaska Air and CF Industries go up and down completely randomly.

Pair Corralation between Alaska Air and CF Industries

Considering the 90-day investment horizon Alaska Air Group is expected to generate 2.4 times more return on investment than CF Industries. However, Alaska Air is 2.4 times more volatile than CF Industries Holdings. It trades about 0.28 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.07 per unit of risk. If you would invest  5,416  in Alaska Air Group on October 9, 2024 and sell it today you would earn a total of  1,024  from holding Alaska Air Group or generate 18.91% return on investment over 90 days.

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

Alaska Air Group  vs.  CF Industries Holdings

Alaska Air Group

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Alaska Air disclosed solid returns over the last few months and may actually be approaching a breakup point.

CF Industries Holdings

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, CF Industries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alaska Air and CF Industries

The main advantage of trading using opposite Alaska Air and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alaska Air 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 Alaska Air Group 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.