Correlation Between CF Industries and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both CF Industries and Southwest Airlines 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 Southwest Airlines 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 Southwest Airlines, you can compare the effects of market volatilities on CF Industries and Southwest Airlines 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 Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Industries and Southwest Airlines.
Diversification Opportunities for CF Industries and Southwest Airlines
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CF Industries and Southwest is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines 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 Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of CF Industries i.e., CF Industries and Southwest Airlines go up and down completely randomly.
Pair Corralation between CF Industries and Southwest Airlines
Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 0.77 times more return on investment than Southwest Airlines. However, CF Industries Holdings is 1.29 times less risky than Southwest Airlines. It trades about 0.21 of its potential returns per unit of risk. Southwest Airlines is currently generating about 0.09 per unit of risk. If you would invest 8,368 in CF Industries Holdings on August 24, 2024 and sell it today you would earn a total of 628.00 from holding CF Industries Holdings or generate 7.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
CF Industries Holdings vs. Southwest Airlines
Performance |
| Timeline |
| CF Industries Holdings |
| Southwest Airlines |
CF Industries and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CF Industries and Southwest Airlines
The main advantage of trading using opposite CF Industries and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Industries position performs unexpectedly, Southwest Airlines 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 Southwest Airlines will offset losses from the drop in Southwest Airlines' long position.| CF Industries vs. Nutrien | CF Industries vs. Intrepid Potash | CF Industries vs. Corteva | CF Industries vs. ICL Israel Chemicals |
| Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. American Airlines Group | Southwest Airlines vs. JetBlue Airways Corp | Southwest Airlines vs. Spirit Airlines |
Check out your portfolio center.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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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