Correlation Between CF Industries and Neo Concept

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

Diversification Opportunities for CF Industries and Neo Concept

-0.17

Correlation Coefficient

CF Industries  Neo Concept

Good diversification

The 3 months correlation between CF Industries and Neo is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Neo Concept International Grou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neo Concept Internat 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 Neo Concept. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neo Concept Internat has no effect on the direction of CF Industries i.e., CF Industries and Neo Concept go up and down completely randomly.

Pair Corralation between CF Industries and Neo Concept

Allowing for the 90-day total investment horizon CF Industries is expected to generate 5.34 times less return on investment than Neo Concept. But when comparing it to its historical volatility, CF Industries Holdings is 10.55 times less risky than Neo Concept. It trades about 0.16 of its potential returns per unit of risk. Neo Concept International Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  51.00  in Neo Concept International Group on September 12, 2024 and sell it today you would earn a total of  5.00  from holding Neo Concept International Group or generate 9.8% 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.  Neo Concept International Grou

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.

Neo Concept Internat

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Neo Concept International Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly weak fundamental indicators, Neo Concept demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and Neo Concept

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

The idea behind CF Industries Holdings and Neo Concept International 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.