Correlation Between CF Industries and Smith Douglas

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

Diversification Opportunities for CF Industries and Smith Douglas

-0.27

Correlation Coefficient

CF Industries  Smith Douglas

Very good diversification

The 3 months correlation between CF Industries and Smith is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Smith Douglas Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Douglas Homes 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 Smith Douglas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Douglas Homes has no effect on the direction of CF Industries i.e., CF Industries and Smith Douglas go up and down completely randomly.

Pair Corralation between CF Industries and Smith Douglas

Allowing for the 90-day total investment horizon CF Industries is expected to generate 2.16 times less return on investment than Smith Douglas. But when comparing it to its historical volatility, CF Industries Holdings is 1.78 times less risky than Smith Douglas. It trades about 0.05 of its potential returns per unit of risk. Smith Douglas Homes is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,400  in Smith Douglas Homes on September 14, 2024 and sell it today you would earn a total of  847.00  from holding Smith Douglas Homes or generate 35.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.99%
Values	Daily Returns

CF Industries Holdings  vs.  Smith Douglas Homes

CF Industries Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 10 (%) 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.

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with CF Industries and Smith Douglas

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

The idea behind CF Industries Holdings and Smith Douglas Homes 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.