Correlation Between CF Industries and Scotts Miracle

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

Diversification Opportunities for CF Industries and Scotts Miracle

0.49

Correlation Coefficient

CF Industries  Scotts Miracle

Very weak diversification

The 3 months correlation between CF Industries and Scotts is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Scotts Miracle Gro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scotts Miracle Gro 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 Scotts Miracle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scotts Miracle Gro has no effect on the direction of CF Industries i.e., CF Industries and Scotts Miracle go up and down completely randomly.

Pair Corralation between CF Industries and Scotts Miracle

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 0.44 times more return on investment than Scotts Miracle. However, CF Industries Holdings is 2.28 times less risky than Scotts Miracle. It trades about 0.14 of its potential returns per unit of risk. Scotts Miracle Gro is currently generating about 0.06 per unit of risk. If you would invest  7,865  in CF Industries Holdings on August 31, 2024 and sell it today you would earn a total of  1,001  from holding CF Industries Holdings or generate 12.73% return on investment over 90 days.

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

CF Industries Holdings  vs.  Scotts Miracle Gro

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.

Scotts Miracle Gro

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Scotts Miracle Gro are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Scotts Miracle may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with CF Industries and Scotts Miracle

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

The idea behind CF Industries Holdings and Scotts Miracle Gro 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.