Correlation Between CF Industries and SM Investments

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

Diversification Opportunities for CF Industries and SM Investments

0.0

Correlation Coefficient

CF Industries  SM Investments

Pay attention - limited upside

The 3 months correlation between CF Industries and SVTMF is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments 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 SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of CF Industries i.e., CF Industries and SM Investments go up and down completely randomly.

Pair Corralation between CF Industries and SM Investments

Allowing for the 90-day total investment horizon CF Industries is expected to generate 9.13 times less return on investment than SM Investments. But when comparing it to its historical volatility, CF Industries Holdings is 1.29 times less risky than SM Investments. It trades about 0.02 of its potential returns per unit of risk. SM Investments is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,420  in SM Investments on October 7, 2024 and sell it today you would earn a total of  220.00  from holding SM Investments or generate 15.49% return on investment over 90 days.

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

CF Industries Holdings  vs.  SM Investments

CF Industries Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 1 (%) 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.

SM Investments

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating primary indicators, SM Investments reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and SM Investments

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

The idea behind CF Industries Holdings and SM Investments 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.