Correlation Between CF Industries and Alaska Air

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

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

Diversification Opportunities for CF Industries and Alaska Air

0.49

Correlation Coefficient

CF Industries  Alaska Air

Very weak diversification

The 3 months correlation between CF Industries and Alaska is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Alaska Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Air Group and CF Industries 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 CF Industries Holdings are associated (or correlated) with Alaska Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Air Group has no effect on the direction of CF Industries i.e., CF Industries and Alaska Air go up and down completely randomly.

Pair Corralation between CF Industries and Alaska Air

Allowing for the 90-day total investment horizon CF Industries is expected to generate 1.75 times less return on investment than Alaska Air. But when comparing it to its historical volatility, CF Industries Holdings is 1.17 times less risky than Alaska Air. It trades about 0.02 of its potential returns per unit of risk. Alaska Air Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,184  in Alaska Air Group on October 23, 2024 and sell it today you would earn a total of  1,628  from holding Alaska Air Group or generate 31.4% return on investment over 90 days.

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

CF Industries Holdings  vs.  Alaska Air Group

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 weak technical and fundamental indicators, CF Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Alaska Air Group

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 20 (%) 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.

Pair Trading with CF Industries and Alaska Air

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

The idea behind CF Industries Holdings and Alaska Air Group 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.