Correlation Between CF Industries and Service Properties

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

Diversification Opportunities for CF Industries and Service Properties

-0.09

Correlation Coefficient

CF Industries  Service Properties

Good diversification

The 3 months correlation between CF Industries and Service is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Service Properties Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Service Properties Trust 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 Service Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Service Properties Trust has no effect on the direction of CF Industries i.e., CF Industries and Service Properties go up and down completely randomly.

Pair Corralation between CF Industries and Service Properties

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to under-perform the Service Properties. But the stock apears to be less risky and, when comparing its historical volatility, CF Industries Holdings is 1.77 times less risky than Service Properties. The stock trades about -0.05 of its potential returns per unit of risk. The Service Properties Trust is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  243.00  in Service Properties Trust on December 23, 2024 and sell it today you would earn a total of  38.00  from holding Service Properties Trust or generate 15.64% return on investment over 90 days.

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

CF Industries Holdings  vs.  Service Properties Trust

CF Industries Holdings

Risk-Adjusted Performance

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 latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Service Properties Trust

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Service Properties Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Service Properties exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and Service Properties

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

The idea behind CF Industries Holdings and Service Properties Trust 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.