Correlation Between China Green and CF Industries

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

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

Diversification Opportunities for China Green and CF Industries

0.42

Correlation Coefficient

China Green  CF Industries

Very weak diversification

The 3 months correlation between China and CF Industries is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding China Green Agriculture 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 China Green 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 China Green Agriculture 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 China Green i.e., China Green and CF Industries go up and down completely randomly.

Pair Corralation between China Green and CF Industries

Considering the 90-day investment horizon China Green Agriculture is expected to generate 5.97 times more return on investment than CF Industries. However, China Green is 5.97 times more volatile than CF Industries Holdings. It trades about 0.06 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.16 per unit of risk. If you would invest  173.00  in China Green Agriculture on September 3, 2024 and sell it today you would earn a total of  25.00  from holding China Green Agriculture or generate 14.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.75%
Values	Daily Returns

China Green Agriculture  vs.  CF Industries Holdings

China Green Agriculture

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Green Agriculture are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, China Green sustained solid returns over the last few months and may actually be approaching a breakup point.

CF Industries Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 12 (%) 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.

Pair Trading with China Green and CF Industries

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

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.