Correlation Between CF Industries and JD Sports

Can any of the company-specific risk be diversified away by investing in both CF Industries and JD Sports 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 JD Sports 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 JD Sports Fashion, you can compare the effects of market volatilities on CF Industries and JD Sports 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 JD Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Industries and JD Sports.

Diversification Opportunities for CF Industries and JD Sports

-0.67

Correlation Coefficient

CF Industries  JD Sports

Excellent diversification

The 3 months correlation between CF Industries and JDDSF is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion 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 JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of CF Industries i.e., CF Industries and JD Sports go up and down completely randomly.

Pair Corralation between CF Industries and JD Sports

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 0.6 times more return on investment than JD Sports. However, CF Industries Holdings is 1.67 times less risky than JD Sports. It trades about 0.03 of its potential returns per unit of risk. JD Sports Fashion is currently generating about -0.01 per unit of risk. If you would invest  7,642  in CF Industries Holdings on October 5, 2024 and sell it today you would earn a total of  890.00  from holding CF Industries Holdings or generate 11.65% return on investment over 90 days.

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

CF Industries Holdings  vs.  JD Sports Fashion

CF Industries Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CF Industries Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JD Sports is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CF Industries and JD Sports

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

The idea behind CF Industries Holdings and JD Sports Fashion 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.